>8. bank claims that it can't investigate where the money went because it was instant transferred
They really couldn't, or their policies didn't allow handing out information without a subpoena? Given KYC laws, I'm sure that every financial institution involved probably has the records somewhere. As for the policy itself, I'm not so sure whether zelle refusing to hand over recipient information is a bad thing. If I'm selling something on facebook marketplace, I wouldn't want my counterparty to get my dox just because they cried foul. I'd want a judge to examine the request before zelle hands over my info.
Your story sounds possible with one exception, 8 "subject threatens to take bank and zelle to court". There is no universe where bank tells the judge it wont investigate.
1. subject had a bank account with the ability to link to Zelle
2. subject turned on Zelle to receive money from a family member
3. several high dollar Zelle transactions were made - subject claims that they were at home with covid and no one had access to her phone
4. she calls bank to cancel transactions, bank refunds money
5. bank investigates and claims face id and her IP address was used and takes refunds back
6. subject takes bank and zelle to court
7. Zelle says: we are just a middleman - not our responsibility
8. bank claims that it can't investigate where the money went because it was instant transferred
9. banks settles for some of the money
Conclusion? If you have to use Zelle or Venmo, attach it to a bank account with limited funds in it.