Put me in the camp that believes the seller was either totally ignorant or a crook. As for the buyer, he just learned a hard lesson as we all did. The market has changed. Can you imagine this happening 20 years ago in the dealer halls at York?
My approach to buying is a bit different. I assume its broken and is that reflected in the price, then how much will it cost to make whole again. If this engine was purchased for under 150 bucks it could be made to run again for between 200 and 400 more depending on how much removed. Just boards or motors and proper trucks too.
Pete