You sold stolen property. The reality is, you didn't really know it was stolen. Its painfully obvious to everybody else somebody recently got the phone and is of course going to reported stolen. At which time you should have just turned it in. Instead, you sold it on craigslist to a guy who thought, well maybe you weren't being legit. With the realization he bought a stolen phone, he had two options. 1) Pay somebody (if you don't already know one) who works at a phone store to re-program that shit. Or, 2) Get his money back from you.
If this showed up in small claims court, the judge would order you to give the guy his money back. The phone's already back to the owner who paid for it. You either A) knowingly sold a stolen phone, or B) didn't know it was reported as stolen and sold it.
Title of possession is only transferred through currency transfer, services rendered, as a gift, in a barter, etc. Just because you find something, it doesn't give you title of possession from a legal stand point.
You can either disappear, or give him his scratch back. The first choice has risks involved, but you already have the reward. The second is what the law would require you to do.