We don't know if they deemed him a scam, but it certainly looks scummy to me, so I can't blame them on that one. If people knew it was a ~$100 phone from a company in China that virtually nobody has ever heard of being sold for $500, they probably wouldn't buy it.
After a significant delay during which PayPal got to hold onto money that wasn't theirs as an interest free loan.
While, I would strongly recommend against anyone buying a Freedom Phone, that doesn't mean that the way PayPal handled this was acceptable or beneficial to users.
I have never heard of the freedom phone before this but basing the justification for them being banned from using PayPal on the fact they resell a cheap tech product from China is a ridiculous position to hold.
Just be honest and say that you don't agree with their political agenda next time.