This actually happened to me on an iphone from ebay once. Got the phone, was using it perfectly, then upgraded. Put the old phone in a drawer for 6 months.
Then went to trade it in when I remembered about it, but was told it was blocked because reported stolen and was worthless.
Contacted the police, and they did a little bit of a follow up and the trail ended when one of the people who had traded the phone simply said he bought it from a guy at a market.
I'm sure they could have used the IMEI number to find out which insurance company had paid out and therefore who had actually reported it stolen but for a relatively low cost item ($400) it would have been too much work I guess.
It's possible it was a genuine theft, but if that was the case, why was I able to use it for 6 months? I suspect it was traded and then the person waited until all paypal and ebay insurances were expired (when I tried both told me that after 3 months I cannot use their 'dodgy sale' process to recover any funds)