oDesk Funds Misappropriation Advice Requested

Hopefully someone can help me understand what is happening here and perhaps suggest the best next move...

I hired a writer on oDesk a few weeks ago for a fair sized job and paid, lets just say more than a couple hundred bucks up front.

oDesk holds payments for about a week before they pay the writers. During that one week period, the writer came up with every excuse in the book for not getting the work done (e.g. one sick kid, then another, etc. etc.). After the one week period, the writer said they wouldn't be able to complete the work due to pregnancy related issues and entered a refund.

After about a week of the refund saying "pending" on my account, I contacted oDesk and asked them what was up. They said, hey just be patient, we'll pay you once we collect from the contractor. After a few more days, I contacted them again and this time they said, sorry but we regret to inform you that the contractor already withdrew the money and there is none there for us to refund you - we will try to get it for you from her future work.

So, I contacted the writer, and she said, no way, I didn't withdraw any money, here's a picture of my account, yadda yadda.

I contacted oDesk again, and related what the writer said - and this time they come back with, yes that is correct, she didn't withdraw the money because she had other outstanding refunds. In other words, my money had went to pay other people this person had already scammed. I asked if they realized that this was the definition of a Ponzi Scheme? They did not respond to that question.

Meanwhile, the writer is swearing up and down (via gmail mind you, not on oDesk) that this is all a terrible mistake and that they are trying to get it resolved as well. oDesk has very little to say other than, be patient and let us try to work on this.

So, I'm wondering if any of you have had or heard of a similar experience? Also am wondering what is the best next move? Am very inclined to enter a dispute for the charge on my credit card for starters. Any suggestions as to what is going on here and what to do will be helpful - and hopefully this will all be illuminating to somebody else down the road. IF I ever use oDesk again (big IF right now), will definitely never put more than a few buck up as an upfront payment.