I think the coach should resign as he said he would. There are times in life when doing the right thing will cost you everything but it still must be done. I believe this is one of them.
A short story and unrelated to these circumstances but similar consequences. About 12 years ago, I had three small children at home and needed my job of course to pay the bills. Due to my particular area of expertise, they asked me to run some additional engineering software tests on a control system that was due to ship at weeks end. During the tests, I discovered a serious flaw that I felt could potentially cause harm to people and/or property. When I raised the issue to management, they wanted to keep the ship date but merely update product literature to warn people. I felt this was an unacceptable solution because the problem could occur accidentally and relatively easily regardless of warning.
Right away, higher up types in the food chain started to put heavy pressure on me. Several of my peers were upset because I even raised the issue. In short, they wanted to bury this one. In a meeting in front of all the brass, I said if you ship this product, I have no choice but to resign my position immediately. I felt a lump in my throat when I said that. We ended up re-designing the system before shipment. I had many people pull me aside in private after that and said they admired what I did. I said I had to go with my conscience. Some felt I had betrayed them. I didn't ask to be put in that position but I was.
I know that story is not related to baseball, but sometimes you just have to do what you feel is the right thing. Shame on the parents of this young man.