Someone sold me an iPhone with a bad esn, what should I do?

I clearly got ripped off, what should I do? What are my options? Can I use it as a prepaid phone?

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Depends on what carrier you have. If you are on Verizon, no, you can't use it at prepaid. In fact, you can't use it at all. Where did you buy it? If you got it off eBay, you can usually contact eBay about it and they'll get your money back if the phone was't advertised as a bad ESN. If it was from someone of, say, craigslist or a person you know, then I'd suggest trying to get your money back from them. If they won't give it back, there's really nothing you can do.

If it is an AT&T iPhone, you can still use it on a plan or as a prepaid.

Its a problem to sell iPhone with a bad ESN but the best option for you is that you can find a online shop where you can advertise your iPhone and find the real customer for your iPhone. Cellitused, e-bay etc are some website for selling iPhone. I have visited cellitused, its looking good with their service.