Fraud trumps all of that. you were a victim of fraud, their system facilitated the fraud and my guess is, without doing an ounce of investigation, that you were not the only person defrauded of your funds via PP. This is a case of fraud, "fraud is deliberate deception to secure unfair or unlawful gain", you were a victim of fraud and Paypal knows it.
Their attempt to hide behind policy is sad. If any of the other people that issued him negative feedback also did a transaction via PP you might be able to put more pressure on paypal.
If you have a few people that were scammed though the PP system it might show some negligence on PP's part. Focus on the fraud and demand that they reopen the dispute and to give it special handling. When you call make sure that the person you get is a nice person, not someone who sounds like an enforcer but rather one that sounds like they really want to help you.