Finding out one of my kids friends has been lying to us

My boys made a friend like 2 months ago. He lives in our neighborhood and he comes over to play video games with them. One thing we all noticed is he's white but the people he is living with are black which my son asked about and he said she's his dad's sister and that his dad is on deployment in the military and his mom was a firefighter who died. I didn't think anything of it. He talked a lot about his dad and letters he gets from his dad. Their middle school is on fall break so he's been spending the night all we. We brought him back yesterday and I got to speak to his "aunt" said I thank her brother for his service. She was extremely confused and then tells me she's not his aunt. She's his foster mom. And both his parents were drug addicts and died from a meth lab under their home exploding which also killed his two sisters. So he's been lying to us and also writing fake letters from his dad? Not saying he had to say his parents were addicts but to make up a whole story and lie like this feels wrong. Not sure if I should let my boys know their friend lie and let them decide to continue the friendship or not.

@Mrs I have no doubt he has trauma. It's the lying and going so far with the lie and writing fake letters from his dad is a little much for me.