Reporting iphone as lost, selling it, consequences?

A friend of mine just bought the iphone 4s and wanted to know if she reported it as lost and sold it to someone who wanted to activate it, what would happen. She has insurance and was thinking she would get a new iphone, but what would happen to the one sold if it was activated at verizon? Would verizon realize it was the lost phone?

Yes, I lost my phone. They say like the other person said they will shut down. But anyone can just remove the sim card and use it. And reset It easily if they are smart it only takes I few minutes the phone is there's apple don't care it sucks.