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i think the guy was lying and he was the one that stole it. Mate said he didn't protest much.
With ratty bikes i don't think it's that uncommon to see someone else riding your stolen bike. Another mate of mine saw someone riding his stolen bike once, but he was sat upstairs on a bus going the other way at the time so nothing he could do about it!
wow that is good luck! seems mad that someone would be dumb enough so sell a stolen bike in the area they took it