The issue was handled in their SAFT with a provision that states they would return the funds if they failed to deliver a product. Regulations on new technologies aren't a fixed thing, they were optimistic (someone has to be).

Another theory could be that the regulation issue is a pretext. Those big investors that bet heavily on crypto and are now in the red could have insisted to get their money back. Given how low the sentiment about crypto presently is, these investors are in a far better position to make lucrative plays now, than keeping their money in a project that raised near the top of the bubble.