I actually had this problem, myself, when I started on Diamond. I found out later (because I didn't think it would matter) that the name was created in all lowercase. This is why I was unable to add them to friends to see if it existed, and yet the game still said the name could not be used.
It's likely that this is what happened, or the name is possibly in the 30-day lockdown period.
As for the "Verify" option, I don't believe it's entirely accurate if it's working at all.