That's ridiculous. Say you go out one night and the phone slips out of your pocket and you don't notice until the next morning because you're probably pretty drunk. You can back to the bar the next day and ask if anyone has turned anything in. No one has. The phone is lost! If you wish to claim insurnace then you may do, but you don't file a police report for your own negligence!
The situation would change if someone was able to snatch it out of your pocket, that would be theft. Misplacing an item is not theft. What are you going to do? File a police report? What would it say?
"I lost my phone at said bar last night, no one turned it in, it is now stoln"
The police would laugh at you! And regardless if someone found your lost phone, it wouldn't be stolen, it would be found, they just aren't giving it back. Finding something is fair game, it's whether or not the person finding has morals that they would return it. If you found $50 laying on the ground, you would pick it up and put it in your pocket. Would you then be stealing the $50? Doubtful you would tell all of your friends "Hey I found $50 today!"
There is nothing illegal about his plan at all. It is simply a loophole in the system.