In some (and I believe most) states there is a form a form of fraud (fraud in the inducement maybe) that can be prosecuted, it would mean that you could lein on his assets if he has any for the cost of the business, or get your money back and return to him the business. But if you need to consult an attorney maybe even the one you used for the due dilligence on the business, because if they could not find these flaws they either failed to do their job and you may have someone else to look at, or this guys fraud was thorough enough to obfuscate any truths.

Are you able to make any return on the business, or is it just not as presented? Is the slowdown in returns based on some customers leaving out of loyalty? Did the pervious owner sign a non compete clause or did he just take the money and a few of the clients with him?

I am not an attorney, ad any advice I give is from a laymans position so consult an attorney...