This is a great story. I would advise anyone in this situation to hide a small tape recorder, and try to get the prof to speak to it. He should be in jail for extortion. But it might be even better to find out who he selling the code to, and politely ask them if they are linked to his illegal activities. Once they find out what he is up to, they would probably drop him like a hot potato, he wouldn't even learn why, and you wouldn't have to fool with the legal system.

Many professors sell the work of their students without informing their university of the arrangements. It's not nice, but it is to be expected given the power relationship between professors and students.

The most important program ever written (which is still widely used as the basis for all computer design) was actually assigned as a series of homework assignments. Many people made a lot of money. The better professors will share the wealth by providing referrals to high-paying jobs.

It sounds like your professor was stuck in a small market, causing him to need to strongarm the code instead of sharing the wealth. This makes it much easier to figure out who he is selling the code to.

You're not paranoid if they are really out to get you!

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