I was let go from my employer on Monday, on Friday (payday) I received a letter stating that I needed to clarify some questions before they would release my check to me. Is this legal?

No. In CO, you should have received your final check on Monday. Although an employee who quits does not get their check till the next regular payday, an employee who is fired must be given it on their last day of work.

You can do one of two things; you can call the state DOL and file a complaint, or you can answer their questions and see if they release your check then. (If they don't, you can THEN call the state DOL and file a complaint.)

I am in the process of answering these questions. My employer is acusing me of fraud and using my employment to provide a customer base to a business I started a couple of weeks earlier. Does this Matter?

It doesn't make what he's doing any more legal. It was still illegal not to give you your final pay on Monday.

Give the DOL a call.