Quoted from Zitt:Seller:
Contact PayPal to dispute both transactions.
DO NOT ISSUE REFUNDS using the built in buttons!
Let PayPal themselves handle disputes/refunds. That way you are not liable.
Do not move any money from your PayPal account until paypal resolves
Be smart, remove any bank accounts and credit cards for this and any other PayPal accounts you may have
Right, right and right!! Just sit back and let Paypal resolve this, if it even ever comes to that. I suspect the monies will disappear one day, as they would have all along. Just don't allow your own personal funds to get caught up in this!
This is no more than an on-line version of the third party check. A person buys something from you and gives you a check someone else made out to them for a purchase that person supposedly did. The buyer endorses his third party check to you and tells you to deposit it, meanwhile taking your game. When the third party check bounces, good luck finding the third party, let alone chasing him for your money. And your buyer will say he did nothing wrong. Your dispute is with the mysterious third party.
Take all of your personal money out of your accounts so Paypal in their infinite wisdom can not take it to issue the supposed refund. Leave only the disputed money in your account, so you can not personally be accused of stealing the money. If Paypal uses it to issue a refund, then everyone is even. If the scammer reverses their deposit, then they only get their own money back. In either case, they can't hurt you or get at your personal money.