Oh your post gave me the shivers....
I had this a few years ago with a guy my eldest son made friends with. At the time my ds was 10 and the other boy was 13, not many years in the difference so I thought it would be OK to let them be friends. DS had gone many years living here with no local friends so he was delighted with himself.
I noticed at first the lying, it was small lies, things like you say about having better and bigger things than ds, he would claim to be going off on 4 week holidays and he'd still be around the area. Saying that he was going on these big days out but we'd see him playing out. Loads of small things but they mounted. Then the lies got bigger, one night he came running to our house, told us that someone had broken in and they were beating up his Mother, dh legged it down as there were 4 other kids living there, it turned out it was the landlord turfing them out, there was no violence, he was within his right as they were 10 months behind on rent and they had been served court notices to vacate the premises.
They moved to another house (same street) the lies became so much bigger, I spoke with his Mother, who was SO lovely and in the end I felt sorry for them all as she came across as super nice and he was just a compulsive liar. I decided to ignore the lies, told ds that if he ever made him feel uncomfortable or told him things that were out of the ordinary or wrong to come straight to me. Things went a bit quiet for a while, the boys played regularly, going to each others house, I got to know the parents not real well but to the point that I sat in her house drinking coffee. The lies calmed down, things were going well. Then I noticed that when he came here, he was leaving much later each time, we agreed with parents that they would ring me 10 mins before pick up, we agreed a time that they would leave, it worked for a short while, one night it went to 11pm, after ringing the parents phones over 10 times and calling to the house and no answer, I found out that they were in the pub ! this happened once more, when I said no more late visits. We decided to just do day time activities at the weekend, she was always late collecting him, it'd be 5pm, then 6pm and then much later, turned out she was working a PT job and using me for free childcare and some evenings would go to the pub after work.
After a few incidents I wanted this friendship to end, things were heating up again, ds loved this guy, I didn't know what to do. Then one day the boy called but said he had to leave early as his Mother was coming out of hospital, he told me his Dad slit her throat and tried to kill her, I thought LIAR !!!! but in the back of my mind I was thinking, oh shit, what if....... turned out to be lies.
That day he left early, I went into the living room and turned on ds's lap top to do a history check that I would do every now and then, viruses left right and centre, they got through Norton and Mcafee, the TV, the tablet, the lad had downloaded and searched and looked at porn, violent sick porn, porn with kids, porn with animals, I threw up !! I couldn't believe it, I looked at ds, I was so disappointed in him, I just kept saying over and over what have you done, I told him I'd bring him to the Guards and have him arrested as what he did was illegal, ds has severe dyslexia, his type is illiteracy, I knew he couldn't have typed in half the words, but I was still annoyed as he was involved and never stopped it or came to me. I'd been checking everything, but this guy was internet savy, he knew how to delete everything, ds was clueless, I knew he was clueless about history, cookies, cache etc.
I looked at ds and said we're going up now to that house, of course no one was in, just the boy and 3 of his younger sisters, I told him what he did was sick, wrong and disgusting and he ought to be ashamed of himself, I was really annoyed, I told him I was telling his mother etc, when I did she didn't believe me, she wasn't super nice anymore, it was all a front. She had me fooled.
The thing is, this all started off as small lies, making ds do things that he shouldn't like your boy leaving the road, there were lots of small incidents like this, it all came out later that he was telling my ds to ring childline and pretend he was being raped by his Dad, I swore after that friendship that if I ever felt uncomfortable with any friends of my children that I would step in immediately. It's so not worth the heartbreak when things escalate and you find yourself and your own child getting into trouble.
Sorry this was so long but it's so close to my heart. If you feel that this is not right, please do something