So, seven or eight kids saw the entirely wrong thing? And because she says he has lied in the past, something she can't prove, she decides he deserves to forfeit his privacy? She told him she had the authority to search him because others said he had the money. And somehow, she thinks hugging him afterwards makes it even slightly better.
The mother wasn't notified. Childcare 101 says that you don't do anything without parental knowledge and consent. The school called her overzealous in her actions. What she did was criminal. Because she did it to a minor who doesn't know better only makes it worse. He was coerced into removing clothing for a search without his mother's permission. There is no way that could be considered the right thing to do.
Sounds to me like seven or eight kids, two teachers, and one very thoughtless assistant principal owe this boy an apology.