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Blacklisted phones as replacement by o2

Hi.
I have been given by O2 a replacement phone. My original one could not be repaired. The replacement phone O2 sent to me could not connect to the network. After digging up with the help of an O2 shop assistant it appeared that the phone O2 sent is blacklisted. This is because one phone was stolen or lost.

Is it legal for O2 to put stolen goods in circulation?
I left the phone in O2 shop for time being as not sure what to do.
Thanks for any suggestions
Anca

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