The best outcome for you is that you get the item back. PayPal will most likely side with the buyer, ESPECIALLY seeing as how they claim the item is not authentic.
In fact, according to PayPal's rules, if the item is a ⊗⊗⊗⊗, they don't even have to return it, they just have to "certify" that they destroyed it.
That policy is total BS in my opinion, as PayPal has NO WAY to know for sure if the item is real or not. That creates an opportunity for scamming buyers to make bogus claims to get free merchandise.
I don't see a lawsuit being successful here. I don't think the courts would award "remedial damages" in such a case. So I view that as a non-issue. Of course I am not an attorney, and if you are sued, get an attorney IMMEDIATELY.
If you have already gotten the money out of PayPal and you close your bank account, you COULD stick PayPal with the loss, but that will only hurt you in the future. It could end up on your credit report and it goes without saying that you would burn a real account over it.
I would ask the buyer to return the item and issue the refund. If you want to then re-sell it, be sure to verify the authenticity first. I also would NOT recommend re-selling it on the same account.
The reality of your situation is that you are in a no-win position. Many sellers have lost such cases and lost their item as well as their money. PayPal almost ALWAYS sides with the buyers. The ONLY WAY I could see you winning this is if you were an authorized retailer for the item you sold.
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