What they're doing isn't just wrong, it's abusive and possibly illegal, and I'm sorry that you're having to deal with this.

Please seek legal advice and do not take anything they say at face value. They're engaging in bad faith and preying on your fears and ignorance.

Just remember that your didn't do anything wrong, and I hope that you don't get discouraged from your future pursuits, I'm almost certain that there are employers out there who will love this and offer you a great start your career.