Can the Verizon store take my iphone?

Last week I bought an iPhone 4. I was selling it through Craigslist and when the buyer went to the store with me to activate it. They told me it was reported stolen and took it away and I didint get a penny.
Can they do that?

If the phone is legitimately stolen, they can't hold it to turn into the police, as they do not have the authority to do so.

However they have to have the police involved in such an instance, as per Verizon policy, and the police can confiscate the phone.

Something smells fishy on this story here.

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