The issue I have with him just being kept as a pet, is if the Morimotos can do that why bother to open the school as co-ed at all? Why not just keep a stable of boys out the back for when the Social Club needs them? I still prefer the ex-teacher story, I think its more logical.
How about this? (editing your char template Zarazel):
Name: Kaoru Itou
Age: 24 (or something in that region)
Position: Freshman Student
Sexual Preferences: Submissive Bisexual (Or dominant if Leona wishes)
Appearance: (just need the physical description here, not the background to why she's transgendered. Looking at the pics I have given Zarazel I'd say her penis was a nice chunky size, around 8" x 1.5" after the surgery!)
Personality: She absolutely loves Leona and her gang, she is always referring to her with the deepest respects and does whatever she asks without questioning even if it's humiliating or degrading. She is quite a friendly person, she is often seen smiling and making jokes whenever she is not close to Leona. However when near Leona she is a completely different person, she is shown to have even some sort of jealousy towards everybody that comes near Leona and protects her with her life. (Perhaps open to qualification here depending on how you think about my suggestion that she's a double agent below)
Purpose at Arcadia: Kaoru was born a man, his father was working for one of the Morimoto companies and tried to steal from them. Of course the security system caught him and he was almost fired but his bosses discovered he had a son who was a teacher at a Tokyo high school. The company blackmailed him and soon his son was teaching at St Arcadia. Given that Kaoru was a slender, feminine man, with slightly girlish mannerisms, when Leona met him she abused him by forcing him to cross dress and even teach classes in womens clothes. Her lieutenants, particularly Karen Himeki, shaved him all over and forced him into stockings and heels around school. Eventually, against his will and because he had no choice, they forced his father to spend his life's savings of several tens of millions of Yen on a sex-change operation conducted by a team of the best surgeons in Tokyo. Leona demanded they even enhance his cock from its original six inches and leave his balls intact, though a "real" vagina was crafted under his balls with the nerve endings in it diverted from his prostate. Kaoru can now achieve orgasm from vaginal stimulation as well as from her male member.
Kaoru, confused by his feelings of actually enjoying wearing women's clothes and the excitement of the humiliation it brought him, did not fight the Morimotos too hard and eventually came around to adoring her new curvaceous body, being particularly proud of the special treatment she had recieved that made her permanently hairless below her eyelashes and her magnificent large breasts and hips and narrow waist. Kaoru still gets a huge thrill out of being in public in girls clothes and is often aroused. Reina Morimoto decided that despite her age, Kaoru would join this years intake of students, somewhat as a joke since Kaoru does not need any more education, but more as a spy for the Morimoto sisters to mingle with the students and pass on any useful information.
The key things I changed there was the use of local currency and forcing her father to pay for the op. I can't see the Morimotos even doing that! What I have also done is left out the bit about her absolute loyalty to Leona and Reina. I think it might make the game more fun if Kaoru is in fact corruptible by those students who may work against the Morimotos and so that people like Saori have a friend in the know. Zarazel, its up to you - you could play a very dangerous game and have Kaoru outwardly loyal to the sisters and help them in the social club but as a double agent, have her talk with the "enemy" as well.
You don't have to of course, I just thought it would add more interest to the game.
The only issue we have here is that the older students (say just the 3rd years if Kaoru was away from the school for a whole year for her op and recovery) will know who she was, so there's a chance her cover could be blown by an NPC. Or we could have the new students find an old school staff directory in which "Itou, Kaoru" is listed as a male teacher aged 22 (at that time). I think that all adds to the fun.