Humphf.
Sure is a tough one there, Pat. Not a situation I'd wanna be in, but in all fairness, I can't believe the owner had NO idea any of this was going on over such a long period of time. In our shop, we all talk about all kinds of things and we bounce ideas, stories and problems off of each other all the time. Some people think that's not good to be so buddy/buddy, but that's me. I like people and want to help in any way I can... if it's a worthy cause.
With all of the problems and insight this guy/owner has now, so long after so much has happened, I would probably try to help this guy. Sure, he might've done some pretty nasty things, but the way he was described here, he was embarrassed or had too much pride to ask for help and wanted to fix it on his own. Yeah, he went about it wrong, but he sounds decent and I would want to help him get back on track.
I would not fire him, but I would put him on probation and start a plan with him to get his life back in order. Try council with him and see that those kids are cared for properly. The money he made is gone and no use in discussing. They all need to look to the future for a successful outcome here.