The long version:

Skip to asterisks for perv part. 

I have been a single mother since 2008, up until the point I met Dh.  Dh has full custody of his two boys SS#1 and SS#2.  

SS#1 has always been difficult. It was obvious he did not want me to interfere with the way he ran things and I was told SS#1’s behavior was a major factor in Dh’s previous engagement failing.  I understand this is not uncommon for boys that age; however, there is nothing common about this particular situation.  SS#1's own grandfather stated his mother "created a monster, couldn't handle it and left".

SS#1 accelerated his bad behavior when Dh and I met.  He lashed out with his anger regularly and threw huge temper tantrums in public if he did not get his way.  He blatantly disrespected his father and I, ignored me completely and/or pretended not to hear me when I spoke to him. It was awful.  He was rude, had zero manners, and thought he could do whatever he wanted, and manipulated his father into fighting with me. He lied, stole, fought with his brother and my daughter, seemed not to care a bit about any rules or boundaries and was all around a trouble starter.  It was very, very hard.  Dh and I called it quits from the problems twice, but just couldn’t let each other go.  We turned to the CHINS program for help, a county program 'children in need of supervision'.  Within a week SS#1 broke his probation.  Nothing happened.  He was given more probation.  Less than a month’s time he broke that probation several times without further concequences.  This confirmed SS#1’s belief that he was invincible and really could do whatever he wanted.  Things got worse.  Dh was extremely stressed out and was crying on a regular basis by this point from the stress and frustration and just not understanding why SS#1 behaves the way he does.  
I think it should be noted here, that Dh previously discovered SS#1 masturbating, at night in the room he shared with his brother.   “The talk” was had that night.  Boundaries were explained, the when and where were determined.  The list of places ok to do that did not include common areas of the home. Dh is a really great father and he’s doing the best he can.  
In school SS#1 was always different.  He was an angel in school, good grades, and sweet to teachers. That also started to change.  Detentions started and eventually a suspension. Things were getting worse. 
I remember one night SS#1 took my daughter's phone, hid it and lied about it.  Dh left SS#2's soccer practice and came home to handle the situation.  SS#1 put on such a show throwing things, crying, screaming, and flopping and flailing on the bed, doing this exorcism thing with the Catholic cross hand gestures, screaming for Jesus to help save him.  It was crazy.  I’ve never seen anything like it.  And he’s 14 years old.  All because he got caught stealing a phone and lying about it.  
I married Dh in March of this year.  
To this day SS#1 continued his protests, disrespect, greed, and sometimes succeeds in getting between us and causing us to fight. It’s never calm or easy when he is here at home.   He makes sure of that. There’s always tattling on SS#1 for doing stuff to the other children or SS#1 talking back or SS#1 pretending I’m not talking to him or fighting with his dad because he doesn’t want to do a chore.  

****On April 25, 2018 I was getting ready to go to SS#2’s Accelerated Reading Awards at his school.  SS#1 had missed the bus that day, I was planning on taking him to school after the ceremony.  I took a shower, got dressed and walked into the back room to get the blow dryer.  To my surprise a wave of shock and disgust slapped me in the face, as there was SS#1, wearing only his school shirt, masturbating in the laundry room.  Now I should explain our house is shaped like a ‘U’ with a small courtyard in the center.  The laundry room is not at the end of the U, it is not tucked away in a private area, it is a high traffic area that connects the kitchen to the back room.  
The sight hit me like a ton of bricks and I didn’t know what to do, I was going a rather quick pace and was halfway through before I really grasped what was happening, so I kept walking as he turned around, fully, also in shock.  Let me be clear: NEVER EVER did I plan or desire to see my new stepson in such a position or mostly naked.  He is not an infant, he is a young man. There were noises and grunts, the whole awful 9 yards.  In my laundry room.  I contacted Dh in a panic asking what to do.  It didn’t take us much time to realize our bedroom was on the other side of the courtyard from the laundry room.  The sliding door had blackout curtains; however, the curtains were open just enough for our dogs to get inside.  In an absolute dizzy spell of emotions, we realized he was watching me get out of the shower and dress.  I was humiliated, sickened, so so angry and embarrassed.  I have a long history of anxiety and that spiked, adding to this mess of emotions that was unexpectedly dumped on me. 

We contacted the probation officer.  They made me live at home with SS#1 for 2 more weeks before a court date, wouldn’t even take him to the intervention center that weekend, as we requested.  Two whole weeks of anger, disgust, trying to remain calm for the other two children, having to feed and see this teenager that just completely violated me, violated my privacy and he’s just here, relaxing in my house.  Care-free.  It was awful.  I am a rape survivor and living with this was very difficult for me.  Every day I was a crazy emotional mess.  Because of him, his poor choices, his selfishness. 

The court date finally came May 9, 2018.  SS#1’s probation officer didn’t even mention the act he committed, which is a complete probation violation – or to better describe it the CRIME SS#1 had committed in our house. SS#1’s probation officer, who's always seemingly working against us, suggested SS#1 stay home for 2 weeks to finish out the school year.  It would be horrible if his grades suffered, she said….. WHAT ABOUT MY SUFFERING?!?!? Where’s the justice? How many times does he have to violate his probation rules, to see some actual consequences???  My husband took a stand and told the judge what SS#1 did.  The Judge found it fit to remove SS#1 from the home at that point.  THANK GOD, finally some relief, right?  He came home a full week after school ended and on weekends, in which he continued to be rude, disrespectful, stole fireworks and used the privileges, such as electronics, he had surely not earned back.  Without internet, or as we say “screen privileges”, it was discovered SS#1 was looking at porn on his Nintendo DS (a hand held video game system).  We don’t know how long he had been doing that.  At least it was in his bedroom, right?  Not just regular sex, like XXX hardcore porn.

Last Sunday, June 17, 2018 the lady from the Group Home was ill and SS#1 was to stay at home another night.  I noticed some things had been changed in Dh and I’s bedroom, and I had mentioned to him using my old cell phone as a camera to see who’s coming in our room and why.  I set the camera up in the dining room.  The dining room connects the kitchen, our bedroom, the main living room and the hallway that leads to the children’s  3 bedrooms.  
About a half hour after I left for work my phone notified me there was activity.  Someone turned the light on and went to the kitchen.  No big deal.  Approximately 5-10 minutes later I received another notification.  Someone was at the computer.  SS#1.  Sitting rather strangely.  With hardcore porn on the screen.   
So as the big picture hits; he got up around noon, went to the kitchen, sat down and started masturbating. As casual as drinking morning coffee.  In a main room of our home where my 9 year old little girl or his 12 year old brother could come walking in at any time. I am positive he didn’t check to see who was home.  It should also be added the door leading to that hallway is directly next to the computer area, so had they opened the door they would see SS#1, full view, privates out and…gross.  I don’t even want to finish that sentence.  He would have had zero time to hide himself.  My daughter was at work with me because I  do not fully trust SS#1.  Thank God.  What would have happened if she would have seen that?  What would he have done? There are so many scenarios to this and they are all VERY VERY BAD. 
The way it was so casual and natural to him makes me certain this is a regular thing for him.  What was moved in our bedroom, leading up to the camera, was our dirty laundry (including my used underwear) and a personal item from my nightstand.  I am sick about this whole situation.  
Normal teenage boys are horny and curious; I understand that.  Normal boys do not get sent to the Boys Home for an offense and then repeat that offense immediately; completely carefree.  Normal teenage boys do not spy on their Step-mom and masturbate pantsless in the laundry room.  Normal teenage boys do not act as if masturbating in the dining room is a regular part of their morning routine when living with other people, other young people, and having no screen privileges.  
I believe SS#1 has a growing obsession that is going to get him in more trouble.  He has no regard for our rules, of the regular rules of family; such as don’t masturbate all over the house or keep your pants on except for your bedroom or bathroom.  And at this point things are very DANGEROUS for my 9 year old little girl.  It’s not fair that I live in fear of what SS#1 is going to do next, if I open the door will he be there with his privates out? If I go to bed is he going to get into my daughter’s room (which i lock)?  Is he messing with my underwear or in our bedroom, while I’m at work?  These are all very deep, very serious questions a new bride should not be asking.  All of me says this is leading up to a terrible ending.  I do not want to see his privates again, I do not want him spying on me.  I do not want my daughter seeing his privates.  I do not want him spying on her.  
But with all these fears and concerns, our answers from this program is counseling once a week for a fix.  Truly feels like no one is listening to us. 
Here’s little more history; SS#1 has been through many counselors for years.  Since he was 8, I believe.  SS#1 is very smart and very manipulative.  His last counselor was in full belief that everything was getting better and she was fixing him.  During Thanksgiving break, I had him make a list of all the rules he broke, all the disrespect he showed and all the problems he caused.  She was absolutely blown away.  He lied and tricked her, a professional.  Counseling, unless intense, daily counseling, is not the answer, it has already been tried and has not helped. Has anyone there even considered a psych evaluation for him? No one listens to that suggestion either! 
SS#1 has severe difficulty with impulse control and judgement.  With everything in his life, not just this main problem.  He has started a pattern of masturbating in places he knows he shouldn’t.  This is a SERIOUS PROBLEM.  A problem that needs to be taken more seriously.  He needs constant supervision that we cannot provide for him here, due to our employment. 
It is very common for juvenile sex offenders to keep offending, repeating their offences, as he already has.  What if he starts doing this in public, since ‘it’s ok’ at home and no real consequences have been made. I’m too nervous about SS#1’s behavior to allow my daughter to have friends over.  Because he can’t keep himself from masturbating wherever and whenever he feels like. How fair is that to my little girl?  
We requedted they revolk his weekend privilages a while, they said no we are terrible for not wanting him here. Like yea. We need time to heal and try to forgive him. Dam us. I have been a good sport up until this point.  I have continued trying my best with SS#1 and his behaviors, I have suppressed my needs to try to better his, I’ve picked my husband up after SS#1’s shattered him,  I participated in court ordered in-home counseling. I even went through the hell of him staying here after his laundry room abomination.  I’m drawing the line with this one.  For my sanity, for the health of my marriage and the rest of our family, for the safety of my daughter and the mental state of my husband, we need other options.  We cannot over look what is happening and what SS#1 is destroying.
SS#1 has learned nothing thus far and is fearless; he needs the appropriate help that he seems to not be receiving at this point. We put an alarm on his bedroom door so we can monitor him. He calls his dad and asks to go to the bathroom or eat. His dad now allows him out when he's home and I had to fight to not let him out when I'm there alone.  Im so uncomfortable in my own house. So paranoid.  So stressed. What should I do? What would you do?  Is this a lost cause?  Finally get married to have to leave over this?

Help please.

Oh and i stopped at the police station to ask whats legal inside a household.  Had a conversation with an officer in the lobby,  totally informal.  The probation officer called my husband aaying she's reporting I filed a false police report.  Like what the hell.  We asked for a different PO but got rejected. Its unreal. Like a bad movie. Help!