Paypal issue beware.

You can file a claim with your credit card company to see if that will help.  Next time you ship something have the buyer give you an account at UPS or FedEx so that the claim is submitted on their end.

Been using pay pal for years and have never heard of refunding with out the return of the item. I would contact an attorney and also talk to a reporter with the local news channel. If you can get them involved the public attention may help. When you use Pay Pal you have to back your account with a credit card. You can get a Bankcard just for Pay Pal with a $300 to $500 limit and make the bank contact you over those amounts. As soon as you are paid remove the cash from Pay Pal. Do not use the PP account till you have things straighten out. You can also just use the account for receiving payments and after you give them the Card number cancel the Card. You can transfer to a saving account or have them write a check. The check does take a week. I would also contact the people at AudioGon. They have always been very helpful every time I have contacted them. Maybe they can apply some leverage.
It is very hard to make a damage claim. The shipping companies always say it was not packaged correctly. Been thru that many many times. If the guy signed for the package he is saying the package arrived in good condition. You have very little recourse.
Just curious was this a complete sale in the US? Not overseas?

I call they said because he used some sort of mandated government payment they do not require any evidence that it was shipped back.

What type of payment is this?

By chance was the buyer Ben Carson? 

Same exact thing happened to me on US Audiomart with a Krell CD player. Got jacked for 2500 bucks. Fortunately the guy that scammed me lived a couple hours away and was shocked as hell when two of his local law enforcement officers knocked on his door at 830 at night, 

I got my Krell back real quick.

I've had an issue like this when college kid was ordering stuff using the school email/username and ISP, and paying for it with bad checks.  it was an Ebay transaction.  I didn't know it at first, had the antique radio packed up, emailed him to verify address.  He emailed back don't bother I already stopped payment on check hahaha.  I emailed back well I didn't ship the radio yet hahaha.  I traced the ISP of the email, it was a college, called them, the dean took his side.  So then I called campus security, and the local town police where the school is located.  Then things changed quick.  The dean called me back, apologizing, and they shut off the kid's net service.  Turns out he dropped out of college, was still using their free net service to scam on Ebay.  he had a long history of buying things and paying with bad checks.  so I'd advise you, call the police for that city and tell them what the guy did, because he basically ripped off your stereo.  they'll knock on his door and he'll get a nice surprise when they threaten to arrest him unless he returns it.  also call his ISP and tell them he's using his net service for theft, they'll shut him off.