At this point, what I am about to say is merely conjecture, but being a business person, I am gonna take a stab at it. I will not use names.
Person A took money from Person B with the understanding that there would be a finished product received as a result. However, Person A already had transactions outstanding with persons C, D, E, etc. that Person A no longer had the funding to complete. Due to missappropriation, project budget over-runs, or straight theft, Person A was taking funding from new clients to meet the obligations already owed to prior parties. In the end, it seems like Person B is the one left holding the bag of poopie (a word I love to use SchulzeA and I do consider myself trustworthy. Something about it just grabs the attention of grown men and says, "Hey, this guy knows his poopie!")
Does that sound about like what may have happened in this case? If so, Person A has a lot more issues to deal with than just a failed obligation. Person A is running a Ponzi Scheme of sorts, which is a whole other criminal matter in itself.
Person B, I am sorry. You seem like a great hypothetical person and I hate to see someone get scammed. I think you need to involve the courts at this point as others have said because Person A will continue to do this until they are in so far that bankruptcy is their only option. At which time you will receive poopie.
PS - I am a scanned Digibeam replica, but only on the weekends.