It can go differently but with the average startup virgin running the show, they don't know any better, don't understand how important it is to be totally transparent with what were essentially founding partners.
Therefore, if no papers were signed, then the developer retains rights to license their work to others.
Either you do have a contract, he owes you money for the work and he owns the IP; or you don't have a contract, he doesn't owe you anything, he hasn't shafted you and you are libelling him. Legally, you can't have it both ways. A contract can exist without there having been any signed paper.
 IANAL; maybe you need to have named him or make his name inferable to do that.
1) Independently of whether a contract exists, the developer owns the IP. By failing to pay at the agreed-upon time, (possibly even before that if you have a good lawyer) the entrepreneur is in material breach of any verbal contract that existed and in a material breach situation the developer has no obligation to "perform" (transfer the IP). The developer is of course entitled to a legal remedy, that does not mean he is obligated to seek one--he has apparently chosen the remedy of open-sourcing the software.
2) Absent an in-force contract (see #1), the status of the copyright falls to statute, which says that if no money changed hands (and sometimes even if money changed hands), the developer retains the copyright.
3) Defamation in the US requires the plaintiff to prove the defendant's "actual malice". If the developer is spouting a legal theory that he in fact believes to be true, a belief that would survive a preliminary hearing, he's not being malicious. Lawyers don't get defamation lawsuits for advocating a legal theory. He is probably wise not to name the entrepreneur to avoid a lawsuit, but that does not mean he would be by necessity a libeler.
I think if you were an employee, you should have been paid. If you were brought in to work on spec in the hopes that the company would land some investment, you should have pushed for an ownership stake in the company.
The OP's comments about how he wasn't some greedy person looking for a fat check shows he's a bit deluded as well. It's not greedy to get paid for the hard work you do that benefits others, and it's a peculiar mental illness in our industry that many claim it is greedy to be paid. It is not only perfectly fine to be paid for your work, it's fine to be paid very well if you are very good, and there is no shame or greed in doing so.
Very well put!
Should've suggested him to get funded on AngelList to make it more transparent.