I think what he did was terrible and inexcusable. However, and this is just my personal speculation, it may be very difficult to convict on criminal charges if no written contract was signed. I know the funds to buy the inventory were provided through crypto as well, making it that much harder to prove who (real world identity) received the funds.

Gentso was no dummy. I have no clue how long he was planning this, perhaps after the lack-luster response to cryptosmith which he and jsidhu worked hard to create, he could see it wasn't going anywhere and saw an opportunity to make off the gold with minimal risk. IMHO his intentions were (at least initially) to deliver a valuable service to the BitShares ecosystem. He was in contact with a lot of gold dealers, trying to wheel and deal a solid business out of this project. When that changed I can't really say.

I do recall asking him in June if Stan indicated any type of time limit on the funds or indicated he wanted to have the inventory returned. Gentso told me he pitched the deal as a long term proposition and there was no set timeframes, aside from the schedule to complete the development of the cryptosmith website, which the initial seed money funded.

Gentso and I talked quite regularly as that development was underway, and from my outside perspective that aspect of the project was managed well. In fact I believe the site was up and running ahead of schedule. He had nothing but praise for jsidhu.

I wasn't attempting to propose any particular solution, merely to point out that if you want a to encourage liquidity it must be paid for by someone.

Furthermore, I am contemplating a solution to this that doesn't involve dilution.  Think about sharing a cut of all future BitUSD fees with those who provide liquidity in that market early on. 

The early participants to the market are the ones who give it life, the late comers don't benefit from the fees.  In other words, make BitUSD a "profit center" where the profits go to those who make it a successful business.