Well, Mariner, you've stepped in it and the only question is what your STATE laws are. That's what will determine how and whether they can lien your boat, whether they need a written work order and so on. If there's nothing in writing you may be able to demand your engine back and get it. Maybe undamaged.
Best to find out what your local laws are and who knows of the shop and their rep. You might be able to demand your engine back, and if you have any proof of ownership, bring back a cop to liberate it if necessary.
But from what you say...the mechanic certainly sounds full of something. An engine with "no" compression wouldn't have started, wouldn't have run. And would be most unlikely to just "lose" all compression from one day to the next, that wasn't what you'd originally complained about.
Might be simplest to walk away from it but again...you've got to ask locally.