What should we do if now he claims he does not know why the $500 comes out each pay day and wants the full amount taken returned?

An employee quit when he was not promoted and someone else was. He sent an email on a Saturday notifying me of his resignation. He entered our office and left his company items. He also emptied his employee file, removed backups of his laptop, has sent an email to our managers that accused me of stealing from the company, accused my wife of being a drug dealer and said my wife sexually harassed him and so on. He has placed slanderous items on blog pages. He says we owe him $34,000 in pay. We have addressed through time sheets and payroll records, we do not owe him. If anything he owes us for days off we paid him that he was not entitled too. Also, when he came on board, we were sued by his last employer because he left that company owing them money and quit without notice and a 2 week notice that was required to leave the company as stated in his offer package from past company. The legal cost to address this was close to $30,000. He agreed in a meeting with my partners and managers that we would keep him on board if he agreed to pay 1/2 the legal cost and the full amount owed back to his past employer. We paid all legal cost and he agreed to have $500 weekly to be removed from his pay as a loan.