I would definitely stay as far away as possible from that situation. Mainly because when the "pony" (LOL) dies or seriously hurts them when they are "gelding" it, and when their child gets seriously hurt when they put him on this beast, THEY CAN'T BLAME YOU!! Contact the humane society for your area, even if it's just to give a heads up. If you don't want to contact them directly, maybe tell your vet. Also consider contacting child protection about them endangering a handicapped child. Best of luck to you, I understand how you feel about the family issue, and your concerns. Just remember the more you are involved with this, when it goes bad, the more they will blame you.
Horses are the guarding angels of the soul.