Luke Cannon, who groomed two pupils at the South Yorkshire school he taught at before sending them sexually explicit videos and pictures of himself, has walked free from court.
Doncaster Council said it has launched an investigation into Cannon, who founded Cannon's Seafood Bar which opened last week in the market.
But a spokesman said the authority had not provided direct funding to Cannon and were not aware of the charges until the case was made public.
Judge Joseph Reeds QC sentenced Cannon, 27, of Sandcliffe Road, Wheatley Hills, Doncaster to a community order and 125 hours of unpaid work.
Prosecuting, James Baird, told the court Cannon's offences were committed against two pupils, a girl under the age of 16, and a boy over the age of 16, who attended the South Yorkshire school he taught at. They were committed during 2015 and 2016, the court heard.
Mr Baird explained how after he obtained his male victim's telephone number, Cannon began sending the boy explicit videos of himself through WhatsApp and encouraged him to do the same. The boy eventually reciprocated.
Then in September 2016, Cannon told the boy he would pay him Â£500 if he filmed himself participating in a sexual challenge made famous on the internet.
"He did the video but never received the money," Mr Baird told the court.
Cannon also sent the boy pornographic images.
The court was told how Cannon groomed his female victim in a similar way, and after exchanging messages for a short time he began asking her to send him photographs of herself in her underwear.
Cannon, who was newly married when he committed the offences, also told the girl he would like her to engage in sexual activity with him.
Mr Baird continued: "After learning she had seen 50 Shades of Grey he told her that if she wanted to know what the headteacher had said about it she should send him a picture of herself.
"She sent him a picture of herself in her bra and pants, and he sent her a picture of him in his boxers."
Cannon was arrested at the school he worked at on December 6, 2016 after his victims, who cannot be named for legal reasons, went to the police.
After initially making no comment in police interviews, Cannon pleaded guilty to three sex offences including causing or inciting a child to engage in sexual activity at an earlier hearing.
Ian Goldsack, defending, told the court that Cannon had already received some punishment through losing his job and being arrested in 'full glare of colleagues and students he taught'.
He added: "He's also been subject to notification requirements, and will also go through the barring process in relation to the teaching career he hoped to pursue."
Mr Goldsack continued by saying his offending had ruptured his relationship with family, and meant he was no longer allowed to have contact with his nieces and nephews.
Passing sentence during a hearing at Sheffield Crown Court on Monday, Judge Reeds told Cannon he believed he stood more chance of receiving the help he needed through a community order, which includes a 25-day rehabilitation activity requirement.
Cannon's Seafood Bar and Delicatessen.opened last Tuesday at the market.
A Doncaster Council spokesperson, said: “We’ve been aware of the article that was published in relation to Mr Cannon and we are reviewing this matter within the council.”
David Wilkinson, Assistant Director of Trading and Property Services for Doncaster Council, said: “We are engaging in a process of investment in the infrastructure of our markets as we have been doing for some time.
"We did not provide direct funding to Mr Cannon. We were not made aware of the charges brought against Mr Cannon and only knew once the convictions became public.”