Agree that it's not the most professional look. However, the sort of client with the concern you mentioned has an NDA, IP agreement, lawyers... I don't think they'll care much.

The greater risk to the contractor is that this advertises that they deal with shitty clients who don't have those things in place. Working with what sound like fly-by-night clients signals that you're not able to be picky about your work.

If I were the contractor here, I'd bury the project and sprinkle some holy water on it, pursue legal action, and get on with my life. I wouldn't draw attention to what is essentially a failed project. It's naive for the contractor to think that everyone will accept his side of the story regarding the project's failure. From a distance, the failed project is more visible than the flaky client.