Would I prosecute? Absolutely!!! What they did was not only wrong, it's illegal. And like you said to 2 families were hurt because of it. Just because they didn't take your dog from your home does not mean they didn't steal it. Any time you have something that is not yours, you know who it belongs to and keep it, it's stealing.
"The only thing necessary for the triumph of evil is for good men to do nothing."
Criminals count on the average person to
not prosecute, they play the odds and more times then not win. How do you think our society got into the mess it's in right now? People think they have rights to things that aren't theirs. And good people simply look the other way. If these people get away with this, what is to stop them from doing something similar again? Who might be their next victim? Do they have kids? What lesson is it teaching their kids? That doing whatever you want is ok as long as you don't get caught? Because even if you do get caught chances are really good that you won't be punished for it. If they get into trouble for this, it may be enough to give them pause if they ever think about not doing the right thing again.
It ultimately is your discission and I can understand how you simply want to put this whole thing behind you, but please don't base your discission on just wanting to forget the whole horrible ordeal. Perhaps some additional information from the detective would help you to make the discission. And I also must say that whatever you decide to do, no one else should judge you for it. Only you can decide what is best for your well being. I am very happy that you have your puppy back and hope for a long and uneventful life with him.
