hmmm... i'm not a doctor, but as a mom, i would think that it is more due to trauma that he's having these emotional ups and downs. My son was touched inappropriately by another child in our complex and started acting up really badly. He was getting discipline notes sent home almost on a daily basis. He was "caught" jabbing himself in the crotch with a pencil, he was caught trying to get other children to do sexually suggestive things as well. He started having night terrors and his attitude was just off the wall. It got to the point that he was being violent with other children and at lunch breaks had to be separated from most of his peers. It wasn't until we sought counselling/help for him and got to the root of the problem that his attitude has changed... He hasn't brought home a discipline form in a couple months now and has even brought home a couple of "praise" reports.
I would advise you as a mother to seek some serious counselling for your nephew. You won't see results over night by any means, but I think medicating him prematurely will only push down his feelings instead of dealing with them. He's been through some really traumatic things in his young age and a good trauma/abuse counsellor will really be able to zero in on the real issues. Not to mention all the other things he's experience with puberty and body changes/emotional changes! ((HUGS)) This must be tough for you and I really commend you for taking on such an awesome responsibility.