Okay, so you can go on LOA from one server and still play on others. While some things, such as warnings and such apply across the community, LOAs do not. I took an LOA from GENSEC once because I needed a break from it and I was getting burned out. That didn't stop me from doing my staffing duties and such. So him playing on another server shouldn't automatically invalidate his LOA normally.
While the heads up message was posted about his reduced availabilities, his LOA reason was marked "N/A" which typically indicates a private reason. Had he stated in his LOA he wouldn't have internet access and be able to come online at all, that would be an acceptable reason to invalidate his LOA, as he is clearly lying. But this is not the case. He took a personal LOA, and though he stated it takes quite a while to log into either server, he didn't state that he had no access at all and would not be playing what so ever. Therefore, I believe the action taken to invalidate the LOA was not the correct approach.
While Tony did jump ahead with a demotion prematurely and without talking to you specifically, I do not think removal from his position is warranted in this situation. I think a warning regarding that matter, as well as education from the O5 staff on what's acceptable in this situation, would be appropriate, as well as returning you to your original rank.