I think he is bluffing about a police report. What would he report to the local police? That you returned an item that he says he never shipped? The police really hate getting involved in eBay and Craigslist disputes and usually write them off as civil matters (I avoid them both like the plague - unless I am looking for thieves ... we have solved a number of local crimes by monitoring both).

Does he still have your money?

What state are you in and what state is he in?