Lindsay Lohan -- Time Is On Her Side

8/19/2010 9:00 AM PDT

Lindsay Lohan Won't Be Prosecuted over Stolen Rolex Watch

Lindsay Lohan will not be prosecuted over a $35,000 Rolex that went missing ... law enforcement sources tell TMZ.

As we first reported ... the L.A. County Sheriff's Department considered Lindsay a suspect in the disappearance of the Rolex that one of her friends allegedly left in her apartment.  The owner of the watch told deputies Lindsay never returned the watch.  And, the alleged victim claimed to have photographic proof that Lindsay had been wearing the timepiece.

But the alleged victim got all flaky and decided not to pursue the case.   So it's officially case closed.

One less legal problem for Lindsay.  Baby steps.