Paypal Account Limited/Closed Because of a Scam

Two days ago, I received an email from Paypal saying that my account has been limited. (Your account has been limited until we hear from you)

We need your help resolving an issue with your account. To give us time to work together on this, we've temporarily limited what you can do with your account until the issue is resolved.

We understand it may be frustrating not to have full access to your PayPal account. We want to work with you to get your account back to normal as quickly as possible.

What's the problem?

Your account is linked to a PayPal account that has a negative balance. Before we can remove the limitation on your account, you'll need to add money to your PayPal account with the negative balance.  There are a few ways you can do this:

1.  Contact customer support to help you resolve this issue.  Call +65 6510 4650 (for SG customers) or +65 6510 4584 (for rest of Asia customers)

Case ID Number: PP-002-047-175-065

How you can help

It's usually pretty easy to take care of things like this. Most of the time, we just need a little more information about your account or latest transactions.

To help us with this and to find out what you can and can't do with your account until the issue is resolved, log in to your account and go to the Resolution Center.

Yours sincerely,
PayPal

WHAT I DID WHEN I RECEIVED THE ABOVE EMAIL

I went to the Resolution Center, submitted a photo ID and a proof of billing address. I could not access my old account, though. I don't know my password, and the password recovery feature isn't working at all.

After 24 hours, I received another email saying that they have closed my account. (Paypal appeal denied.)

For the safety and security of the PayPal network, we often review accounts for potential risks. After reviewing your account, we have decided to close it because of security issues.

We are making every effort to minimize any disruption to your business.

If your PayPal account balance is zero, and you have no unresolved buyer complaints or chargebacks, your account will remain limited.
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Disbursement options
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Option 1. If you owe refunds to any of your buyers, you can use the money in your PayPal account to refund them.

To refund your buyers:
1. Log in to your PayPal account.
2. Click "Contact Us" at the bottom of any page.
3. Click "Contact Customer Service."
4. Under "Choose a Topic," select "Sending/Receiving Money."
5. Under "Choose a Subtopic," select "Refund/Cancel a Payment."
6. Click "Continue" and follow the instructions to refund payments.

Option 2. Money in your PayPal account will be held for 180 days. After 180 days, we'll email you information on how to receive your funds.

We regret any inconvenience this may cause.

Thanks,

PayPal

HISTORY

The thing is, that old account they linked my current account to was the one I was using when I was scammed by a group of Ukrainian nationals back in July 2010. They posted a project in Freelancer.Com (where I was doing part time jobs back then) mainly looking for Processing Assistants from other countries. Here is the job description they posted:

We are into digital currencies exchange business. Currently we do exchanges between paypal, e-gold, liberty reserve and webmoney. If you ready to go, we just need to know your verified paypal email address, so first few test transfers can be sent to you so you will get familiar with the process. If you will get payments in different currencies (GBP, EUR, etc), convert it into USD and withdraw. Once the withdrawal will be done, you will need to send funds back to us using Western Union. Of course we will pay all the fees, such as Western Union, PayPal and your $20 fee. After the trial period is over, you may expect several transactions per day $100-$1000 range. (Search ppexchangers@comcast.net in Google and you'll know what I mean.)

The test transaction when okay, but further research in Google proved that the person I was dealing with was a scammer, hacking people's Paypal accounts. I reported the incident to Paypal and provided them all the details including the email exchanges between me and the scammer, but they did nothing. Then a few weeks later, I received a reversal which resulted in a negative balance. I refused to add funds to my account, of course since I was really scammed. Paypal then started harassing me with emails that they are referring me to a collection agency, etc etc. I did nothing. I closed the bank account linked to my Paypal account and proceeded to create a new one. But now they have closed my new account, too.

I know I am at fault here. I should have checked the person's history and reputation before dealing with them first. But that time I really thought the project was legit. I wasn't the only one scammed, many other honest freelancers have been victims as well. (If it's a consolation, I wasn't the only one na tatanga-tanga. Madami pang iba.)

The negative balance was a result of a scam where I was THE victim. I felt unprotected by Paypal's terms because it took them a long time to investigate the transaction and rule out that the money was sent to me without the account owner's authorization. And then they deducted the whole amount to my account afterwards. Ridiculous!

Now I'm searching for alternatives to Paypal. I don't really want to create a new account and have them link it to these two Paypal accounts and close it again. :(

UPDATE (October 31, 2012)
The refund instruction is probably FAKE. I've been trying to refund my client $500 for a week now but I'm still getting this error even though the transaction ID is valid: The transaction selected is not a payment. Please click "Get PayPal Transaction ID" to select a valid transaction.

Looks like it's their way of saying that I have to wait 180 days to get my money! How unprofessional!  :(