Does a segwit based side chain like the lightning network allow for fractional reserve? I'm confused. 

I've watched the video The Lightning Network Explained (Litecoin/Bitcoin), and read the following comments by Craig Wright:


  This occurs because schemes such as segregated witness allow for the
  introduction of fractional reserve systems into bitcoin. 
  [Sources: coingeek,
   SegWit and the Illusion of Scale]


From the video explanation of segwit/lightning it would seem that a bitcoin is required to open a payment channel and create the "IOU" that is used for the lightning transaction(s).

How can this be considered fractional reserve if there is a 1-to-1 mapping from bitcoins to payment channel balances?

It would actually seem to do the opposite and keep 3rd parties honest.

What am I missing?

Thanks.
A sidechain has its own blockchain which is coupled to the Bitcoin blockchain via a two-way peg. This allows tokens on the Bitcoin blockchain to be frozen in order to make new tokens available on the sidechain. In turn tokens on the sidechain can be either destroyed or frozen to move money back to the Bitcoin blockchain.

Lightning Network is not a sidechain. It's a second layer that builds on top of Bitcoin and uses the same tokens as Bitcoin. 
Channels are created by sending money into native 2-of-2 multisig addresses on the Bitcoin blockchain. After a channel is created by sending money to the mutually controlled address, the current state of a Lightning channel is stored in a pair of unconfirmed Bitcoin transactions. When one of the participants wants to close the channel, they can unilaterally broadcast the latest state to the Bitcoin network. When the exit-transaction is added to a block, the final state of the channel is executed. Alternatively, they can collaborate with their partner to close it.

Since the full Bitcoin balance of the Lightning channel is stored in the multisig address that established the channel,  all bitcoins are fully accounted for. Therefore, there is no fractional reserve in Lightning Network.