Just some thoughts.
If it is just his reputation, how far in the past is it? Has he in fact changed? What are the reputations of the schools he has already attended? Could you or your teacher talk to the teachers there for insight into his current character, and if he seems to have reformed? How concerned do you expect your current students and their parents to be?
Good luck with this.
This is a real good point. Have you talked with the former school's instructors? Here is a concern as I see it.
If the guy has a bad reputation and legal issues and something happens outside of class, he stalks someone, he hurts someone (whether it was in self defense or a violent act that he over reacted, whatever I'm just speaking generally here) if it goes to court he will be tied with your school. He might not even be at your school but he could be tied to it and you be portrayed as part of the problem. Likewise if journalists would link you to sensationalize the story, lawyers might link you to get settlements and or money from you.
However if you have talked with the other school owners and did somewhat of a background check on him then you could get added insight into his character and protect yourself (or maybe have a defense) if something comes up later. Also it would help you to answer questions to your existing students if the issue is brought up, that you have checked out his character with his former instructors.
As a union rep. I have to deal with bad reputations all of the time, both with workers and management, 90% of the time it is all a bunch of crap. However I do get to see the seamier side of people and had people from both sides of line lie right to my face and tell me they are the greatest thing since sliced bread, when in fact they are lieing to me right then. The difference is the company is libel and I'm just doing my job trying to defend the employee. However you being the owner/head instructor of the school you are responsible (not your instructor who is not local), it can be you that is sued.
I am totally on board with giving the guy a 2nd chance and all of that, but this isn't a private dojo, or if I understand it right, this isn't backyard type of instruction. Instead it is a business entity that has assets, that unscrupulous people might want to go after, if this guy has a bad reputation and something happens. Also because this is a business and it has received funds from the other students to provide a safe and reliable place to train, if you haven't thoroughly checked this guy out then you might be setting yourself up for problems there. Maybe this guy isn't a pervert, pedophile, or violent, he might just start crap in your school such as spreading rumors, intimidate people, whatever; I would recommend that you ask his former instructors how he was as a student. Not just take his word for it.