Returning players deposits and confiscating their winnings should always be a red flag - there are very few cases where doing so is the appropriate decision for a casino. A players balance belongs to the player. It doesn't matter how much they deposited.
A players balance does not belongs to the player always. When a player is earning the balance from manipulation, abusing terms, abusing bonus, fixing match, arbitraging that is not appreciated by any sportsbook then the balance is not his, even the deposit they made can be confiscated by the sportsbook according to their terms.
Please do not ever give a casino a pass because they returned a deposit and only kept player winnings.
I will suggest you not give a pass to a player too when you do not know if he was manipulating you, hiding information from you. You have no way to verify anything except trusting him. In fact you and me have no way to verify anything presented by the sportsbook too.
I like how Stunna handled a confirmed fraude case:
I'd like to stop this right here and make clear that this is not a matter of money but rather a matter of principle. I'm happy to donate at minimum the funds involved in this claim to a charity of the community's choosing.
That makes it clear they don't profit off it, and stops any accusations that they do it for the money.
I think we need to consider the level of experience a project representative have in the community. Stunna, Steve from sportsbet.iom Karl and some others know how the community works in terms of their marketing but these new casino / sportsbooks launching everyday all the time, do not have much idea about how to handle their PR on the forum. May be it's our failure but that does not mean they have intention to scam anyone especially when they are spending money on building a good reputation for their project.