Fraud that Isn't Fraud

[AAAStorage]

I received an email from Square that says one of the payments I ran through Square for a client was fraudulent. It is not a fraudulent transaction as I've used this card the last couple of years.  I got a Receipt number and an Authorization number.The letter wants me to refund the $500 my client paid.  Who has this money because I don't have it and don't have the funds to cover it.  If Square is holding the funds, shouldn't they refund it? Am I twisted in my thinking?  Can I dispute the fraudulent determination?

[Candlestore]

I would call Square support, make sure this is not a scam email etc.

You can.  And if Square is holding the funds, usually for a fraudulent or disputed claim Square holds the funds and uses the hold to pay back the consumer.  You can dispute it and have to show what the charges were for, but 95% the card owners bank determines if fraud or not and you lose. 

Sorry this is happening to you.