They needed to inspect it, eh? Riiiiight.

We can't sell repacked as new (unless it hasn't been sold), why can they? Demo, re-selling returns, I don't care- it shouldn't be done.

If it's a regional distributor, I would get in the grill of whomever I need to, even if it means I need to go to the top of their food chain. I would also tell them that it has happened before and if possible, show proof. If they don't want to stop this BS, tell them you'll stop using them and you'll go public with their name. If it's true, they'll have to take their lumps because they won't be able to sue.