Rolex sent to RSC for service, got confiscated

[Vaxe]

My cousin purchased a brand new Datejust 16200 from an AD in Northern California in 2006, and recently sent it over to RSC for its first overhaul. However, the service rep is refusing to return the watch to her on the ground that it is a stolen piece. They claim that the F serial is registered to another individual and "came up red in the system".

How could this have occurred?

We tried contacting the AD, but they are no longer in business. Could the AD have recorded the sale under another person's name, and sent it over to Rolex with the intention to reclaim the watch in the future? Is this even remotely possible???

Any idea on where to proceed from here? Thanks in advance.