The right to sell something is predicated on owning the item in question.
A buyer of stolen goods is unable to take legal ownership, it doesn't matter if he doesn't know the item is stolen. (i.e. I steal a car, and sell it to you, you don't own the car even though you gave me money and you didn't know the car was stolen)
It does matter that the coins were not put up for sale by the owner.
How is a buyer supposed to know if the seller is making a bona fide offer, esp. where the buyer may place its buy order in advance of the sell order?
I stand by my position that it's up to the exchange and the seller to protect against unauthorized sell orders.
Of course, under extreme circumstances, the buyer will see that something is out of place – as is exactly the case here, where the buyer came forward because he felt that the sell order was not valid.
BUT (and here's the most important point): who gets to decide when a case is "extreme" enough to put the burden on the buyer? It's not a call anyone should be able to make, unless there are clear rules, published up front.
The buyer isn't liable as he didn't know the property was stolen, but he don't get to keep the property. Typically in this case he would need to seek damages from the exchange to recover his assets (the dollars used in the trade)
IANAL but I have first hand seen this type of stuff on various exchanges. (i.e. stock gets fraudulently wired out one account, and sold. Trades get busted)
It sucks all around, but the fact of the matter is the great deal the buyer was getting never would have existed if somebody didn't steal from someone else. If I stole your life savings and sold it to your neighbor for a dollar, you don't really think your neighbor should be able to keep it do you?
Buying stolen goods on an exchange doesn't make it ok. It sounds to me that you'd like it to be - but that isn't how it works.
What happened here is akin to me logging into your brokerage account with a stolen password and selling all your securities. This happens and those trades get busted. Sometimes the selling bank just eats the loss as it would take too much work or too much embarrassment to recover, but other times they work with the counter-party to unwind.
I'm not asserting this happens in all cases. As I said above, IANAL. I know equity laws in particular are a bit different than a lot of other types of property which fall under common-law.
That is kind of moot though as equity laws don't apply here - bit-coins aren't equity.
This is (subject to numerous exceptions) not correct. While in common law you are correct, in equity, if the buyer is a bona fide purchaser for value without notice, he or she can get title.
(IANAL, TINLA)
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http://en.wikipedia.org/wiki/Rogue_trader - shows other examples too