I've been letting a kid get catfished for almost a year. Is that unacceptable?
If you could stop it, yeah, I think it's unacceptable. You approve of him getting tricked?
No, I do not condone that.
Do you know the person who's getting catfished very well?  If you do, you should let them know, so they don't get hurt even more when they find out.
I met him at the orphanage. He has nowhere to go.
Despite his circumstances, and since you're aware of what's happening, you need to be honest with him.