Imo, you should not rot him. While I understand and agree that his behavior is rude and deceitful, the morally correct action is to keep him at his current playing time, and if you'd like block his PMs and forum posting ability. As long as he keeps his equipment on there is no reason to punish him just for the sake of showing your owner power.
You have a team full of people who pay between $3 and $9 a month to be a part of your team. They trust you to treat them fairly and you have an obligation to go above and beyond in ensuring that you are not taking advantage of that trust. I understand he as acted immature and rather rudely, but he has spent a good amount of money on his player and has given a lot to be a back-up on your team in past years. Don't take away one of perhaps his last 3 seasons on a power trip buddy.
And too be clear, I understand where your coming from. You seem like a very good honest owner, and how you handled the first two paragraphs of the OP is likely identical to how I would have handled it. But with that said, rotting should always be an absolute last resort.
By not rotting you:
1. Set a good example for lower level owners.
2. Show your players that you will never abuse your powers.
3. For the season get to keep the depth which was appearently important to you and helping your team.
By rotting:
1. Bad example.
2. Make your team worse off with less depth.
I understand he's likely an immature kid, but make the right choice buddy. If you don't need him on your team I'd say just release him and wash your hands of the situation, consider it payback for him helping you the past seasons he was on your team. And if you do need him, there is no reason to rot him, so don't....
All imo of course. Do the right thing imo.