This is not an easy situation to fix because when you have a 50-50 deadlock between LLC members, you have now go to court and apply for dissolution of the LLC if the two of you cannot come to a workable agreement on your own as to how to proceed. The LLC can also sue the other member for misappropriating funds to recoup them. These are the remedies available.
The consequences are that the honest member will be cheated out of his funds and have to sue the other member for embezzlement if there is proof of that and also, as you say, the possibility to losing limited liability protection.
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