Investment money that was lost – is it permitted to return the principal?

Shalom.

He gave his friend a sum of money so that he would invest it for him and they would share the profits. They did not stipulate what would happen in the event of a loss. At first, the one dealing with the money gave the owner of the money profits every month. In practice, after a few months it became clear that the money had been lost due to a small lack of care on the part of the investor. Is it permitted for the investor to return the principal to its owner?

Shalom u-vracha.

Yes, it is permitted to give him back the principal.

The Rambam and the Raavad disagree in every case of an arrangement that is half loan and half deposit, as to what kind of guardian the one who deals with the money is considered with respect to the deposit half — whether an unpaid guardian or a paid guardian. The Shulchan Aruch (Choshen Mishpat 177:4) rules like the Raavad, who holds that he is liable as a paid guardian. It follows that there is no drawback in the investor obligating himself in responsibility even as a paid guardian, and all the more so as an unpaid guardian, who is liable for negligence. Certainly he can and must pay what was lost due to negligence or insufficient care. Regarding the profits, the owner of the money can claim that there was an admission on the part of the litigant that there had been profits, and the investor must prove that there were losses; and if he is believed, he must return them.