It's not reversing per se, it's like the transaction never happened. They send the money from their address to the exchange, the exchange credits that money.

It's not reversing per se, it's like the transaction never happened. They send the money from their address to the exchange, the exchange credits that money. Then they release their chain (that they have been building privately). This chain is taken as the consensus and accepted. Why? Because it is the longest chain. Why? Because it has had more than 50% of hashpower behind it, allowing it to add blocks faster than the current network. Now the trick here is that because a single entity controls this new chain, they can just not include the transaction which happened between them and the exchange. So it a sense, it never happened. Yet, the exchange credited the account -- Thus the exchange account now has currency, and the original account has currency as well.