EBay problem - do I call the police? What do I do?

I just sold my friend's iPhone via eBay to someone, before the phone arrived I sent him an email asking him to refuse shipment and I will refund his money As soon as possible, since the original owners of the phone decided not to sell it and asked me to return it. The person on the other end didn't refuse shipment as I asked him to and already got my refund (I gave him a refund by mistake). Now he has the phone (which my friend declared 'stolen' with AT&T) and my money… What do I do?

Well he is now entitled to the iphone, but not the money, contact paypal about it tell them you accidentally sent him a refund and get them to reverse it.

since its declared stolen, the guy will eventually demand a refund for it, when they do, you do your refund thing.

if you sent the payment as a normal payment, you can get it back by opening a case against them, you need absolutely no proof whatsoever to get your money back that way, technically anyone can successfully scam money out of another for claiming "i never received the item". Though your grounds of wanting payment back is that you sent it by mistake. If you used the refund option, go and actually contact paypal and have them reverse the refund, and get some documentation stating the buyer openly declared that they got the iphone, or refused to send it back (technically still acknowledging ownership). Do it right away however, the longer you leave it the less likely youll get your money back.

There's no need to panic, no matter how someone obtains your money, you can always get it back with paypal.

That isn't a criminal act you were stupid enough to sell something that wasn't yours and not only was stupid enough to think they would refuse shipment but stupid enough to refund the money not even civil court will bother with your stupidity.