As hackman points out, threatening legal action is a scare tactic on their part.
It is a scare tactic, and only that, because they haven't a legal leg to stand on ... they are bullies with no backup.
You, on the other hand, do have backup. The law is your friend: http://www.ic3.gov/complaint/
Internet Crime Complaint Centre wrote:
Internet crime is defined as any illegal activity involving one or more components of the Internet, such as websites, chat rooms, and/or email. Internet crime involves the use of the Internet to communicate false or fraudulent representations to consumers. These crimes may include, but are not limited to, advance-fee schemes, non-delivery of goods or services, computer hacking, or employment/business opportunity schemes.
Reverse all the charges on your CC that don't belong there and file a report using the previous link with the FBI. Don't bother threatening them with legal action .. just get the ball rolling and you'll have this resolved about 5 minutes after the cops get in touch with the business owner.