Wow. What I though was gonna be a simple, 2-3 post thread about my seemingly-uncommon situation (since I've never heard anything like this from Square mentioned before) has blown into a 5 page thread, with quite a few others sharing my woes. I'm kinda shocked.
So where do I go from here? Supposing I refund the $5k of charges that Square is holding hostage, and ignore their requests for documentation, what will happen to me - will they shut me down permanently? Will they "forget" about it after a while, and let me go back to making small charges? Or is it like an F/R - once you poke the sleeping beast in the eye, you're permanently screwed?