I do not envy your situation. With that in mind the approach I would take is to speak with my daughter and let her know what the dangers are, what you find acceptable / unacceptable and that you expect her to not be influenced by this other kid. Maybe you should be the one to mention the bad behavior to the grandparents of the other kid and take the heat instead of your daughters mother? Let them be PO'd at you and keep your daughter safe and on your side.