I also see a lot of holes in the story.
Unfortunately, if the phone IS stolen, it wouldnt warrant much response from the police because the phone is retailed at $700, its $200 below the Grand theft charge. $900 is where grand theft and felonies begin.
The police will only pursue this sort of charge if the person is caught in the act, or on the person within a reasonable time of the report.
You have no option here. There are no unlocks for the Verizon iPhone to work on Metro PCS (your only other carrier option) and I would think that if the phone were really given as a dud gift, you would have gone back to the person who gifted you the phone and said "hey, I appreciate the gift, but unfortunately, its not working" and worked with them, not strangers on the internet.
Here is what i think happened...
I think that the phone was charged to an account. Whether this account is your, or perhaps a boyfriends or parents or whatever... Once the bill came with the equipment charge, you were unable to pay and said screw it, Ill just attach my phone to another account and get a free iPhone and attached a basic feature phone back on the account.
Thinking you were scott free on a "discounted" iPhone, you attached it on your new service, but when Verizon realized that you werent going to pay the bill, they looked up the history of the "stolen" device and locked it. Now realizing that you cant use the phone on Verizon you are trying to unlock it to use Metro PCS (again, the only other CDMA compatible option) and are trying to use the good graces of honest people on thie forum to perform this change over.
Im sorry, but if this is all true, stealing a phone from Verizon does not constitute a 'Free' birthday gift.
If all of this ISNT true, go to your friend who gave it to you and give it back. Plain and simple.