My question involves a consumer law issue in the State of: Alberta, Canada

My friend purchased a Seadoo at a Police Seizure Auction, of which he has full proof and bill of sale. He later traded it to another party for a motorcycle in another legal transaction. When the 3rd Party tried to register it, the Police then stated it was a stolen Seadoo (which is possible as it was a Police Auction where it was obtained), and seized it from the 3rd Party. When proof that the Seadoo was shown to the police that it was a legal sale, the Calgary Police then stated that the Seadoo is gone and they were not going to return it or compensate the 3rd Party for the loss of the Seadoo. Worse, they told my friend that he has to compensate the 3rd Party for the loss by either paying him or returning the motorcycle. We basically believe that the police had robbed the 3rd Party, and then refuse to admit their mistake and are trying to get out of compensating that party by putting the blame on my friend for having a stolen Seadoo (which again, was purchased FROM the Police).

My friend will not return it, as he does not believe he is in the wrong whatsoever. Is he in possession of stolen property now? We believe that the police is at fault and should be the one compensating the 3rd Party, especially for putting it up for sale in the first place.

What is a recommended course of action??