I'm not sure that there has been any fraud here other than, possibly, whatever reason the original high bidder gave to make the withdrawal. The original guy's buyer's remorse is the only possible wrongdoing. The auction between you and the successful bidder was conducted with complete integrity and, while I can understand feeling awkward, judging from your concern you apparently have integrety. This is a judgement call and you have to go with your heart but it's ultimately an honest auction. I believe that I'd just complete the transaction and only address any concerns if the successfull bidder raises them. I don't think that I'd offer a discount. You could block the original high bidder though so that, at least, it doesn't happen again.