Tracing you?How?How does he say he's 'tracing' you?And why?As to the legality,I doubt it's illegal,if all he's doing is noting what your IP is all the time..even if it was,I doubt you could do much except complain to the guy's ISP(if he's got a trojan or whatnot installed) though I wouldn't bet my life's savings on whether they'd take action.A little more details please.

Cheers