J.W.
Okay this is a rather strange story but really what did the boy do wrong? They are not related he apparently was attracted to her and I guess since she did nothing she was attracted to him. Then they broke up and you all cast him away. I am actually more concerned for his mental well being than that of your daughters. He didn't do anything wrong, it isn't wrong to be attracted to girls that are not related to you yet he was punished and your daughter was let off with nothing. That is a really strange message to send to either of them.
Has it occurred it is your reaction and not the act that is causing your younger daughter stress. Perhaps she is attracted to him who knows.
I just read your what happened: After reading that YOU are the problem, not your step son. Your younger daughter's therapist said he should not come into the house because of what she said. Here is why it is wrong, your younger daughter has been manipulated into believing he is dangerous by YOUR words and actions. You are causing your entire family this grief all because of some distorted view of reality. You need help!!! If I could contact your husband I would tell him to leave you for the sake of the relationship with his son which was unfairly damaged by you. That is not the actions of a loving wife or caring step mom. You took your daughter's side to the extreme.
Just because you had the power to completely remove her ex boyfriend from the situation to make life easier on her doesn't mean it was the right thing to do. You were wrong, you need to make it right! What was done to that boy was soooo wrong and that you continue to blame him and say his father is wrong, in denial, and embarrassed is way wrong! He is not any of those things. In the cold light of day he has realized just how wrong the actions you pushed on him were!