To old cat---Question about real estate agent misconduct

I have some questions for you.

In August we made an offer to a short sale house. At the beginning of September, the agent called us and told us that the bank asked a much higher price ($35K). At that time even though we didn't think it's a good deal but the price is still in our range so we decided to go with it. But yesterday morning we got the Purchase & Sales agreement draft, we found that the seller was not the original owner but a friend/coworker of the agent. We called the agent and asked why the owner was changed.

The agent eventually admitted that the this guy acquired the ownership of the house but he said this is because they wanted to reduce the complexity for us. But we suspected that they bought the house at the price we originally offered and then sell it to us at a much higher price. He also said that we can cancel the offer and he will return us the money we spent on home inspections and appraisals.

So my questions are:

1). What option do we have? Can we ask the agent to lower the price?

2). Is this a misconduct? If yes, what regulation(s) he violated and what authority we can contact about this?

3). if we complain him to the appropriate authority, what consequence he might face?

Thank you very much for your answer