I think the neck looks a bit sketchy. I am sure some more experienced members could chime in. I cant really say what you should do legally, but if I was in that situation...
The first option would be try and find another frame or parts bike. Depending on where you are they might be readily available for cheap, that would also give you tons of extra/needed parts. Where are you? Are you close to Az? I have an extra 78 K frame. If you really want to make this bike I think that buying a parts bike would be the best bet. You have all the parts BUT the frame to work with on that bike...
You could always present the evidence and demand your money back.
Again, I dont know how it is where you live but a couple times I have just gone up to a cop and asked them to run the VIN to see if its stolen. Most likely the bike is so old that its not even in any system anymore.
This is something you might want to ask out in the main forum so someone who has been around the block a couple more times can chime in.
Dont let it get you too down. Worst case you have everything but the frame to work with, assuming its not currently "hot"