Only explanation is the guy had to have a motor swap, but more then likely a turbo. Even a supercharged e36 m3, unless making around 450+whp would not be able to beat you the way this guy did with 2 other people in the car.
Don't worry, it looked the way it did, so he could do exactly what he did to you. Sleeper cars are built for 1 purpose, to embarass those that can afford real cars.