Step three is missing the proof that if all the groups formed by sending someone one are homogeneous, then the whole group is homogeneous.
This breaks with two people because the person you send out need not have the same color as the other.
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In fact this "proof" is no proof at all (independently of the fact that it is wrong), because step 3 is just a restatement of the theorem, with the only justification "therefore", but no argument.