japanese maple mystery problem, please help

I recently purchased this coral bark JM. Before purchase, it looked perfect, and I didn't notice that a central leader was cut off. I called the seller about the amputated leader, and he said no worries, it will still reach full growth potential.

Now, I've noticed a white, crescent-shaped fringed growth coming from leader that was cut, and I see caterpillar-like bugs around it. Also, some of the leaves are turning, which you might be able to see in the photo of the entire tree. I haven't planted it in the ground yet. Is this a fatal problem? Should I get my money back and get another?

This is really upsetting me, and your help will be most appreciated!

It appears to be a little stressed, But that's normal.
I marked up one of your photos.
I would cut and seal at the yellow line.
the red circles look like regular tree moss, But you could spray them with a fungicide.

Mad

Thanks, Mad! I really appreciate your very helpful response. Just one question, what do I use to seal the cut? I'm truly a novice. jojoba

I use a pruning spray that I got from the nursery,
You can get it at HomeDepot, or Lowes


http://www.homedepot.com/p/Spectracide-13-oz-Ready-to-Use-Pruning-Seal-Aerosol-Spray-HG-69000-3/100352315#.UavKi0C86So

Mad

Where the Coral Bark Maple is red is healthy.
Where it is black it is a dead branch (or in this case, leader) A decay fungus is growing there, and the white crescent is the fruiting body.
I would prune it back a couple of inches into good wood, and seal it, but do not use black sealer. You just want some anti-fungal properties. Black stuff (paint, tar, other) seals in the moisture, feeding fungi, and (in the sun) heats up the cut area so healing is delayed as more cells cook to death.
Look at the color of the inside wood when you prune. It should be a uniform, creamy color, no tan or darkened areas. Look for some pictures of Verticilium and other fungus diseases so you might recognize a problem when you prune this one.
If, when you cut it the interior wood still looks compromised, cut farther (perhaps another 2" lower). If it is still looking bad, take the tree back. Explain why what you think they did is wrong (cut it in the wrong place and the tree did not heal, inviting disease, and then they never re-pruned it) and what you did (Pruned it to get rid of the dead, fungused part, and never found good wood).

It is not impossible that this tree has some internal disease that caused the leader to die. They cut it off, but the disease is already in the main trunk, and the tree will never really recover. If it does, it may not take a nice shape no matter how much pruning you do.

Here are some fungi and other diseases Maples can get. Some of these can interfere with the water and nutrient flow up and down the plant, so the symptoms are similar. Usually the foliage is lost, then individual branches or the whole tree dies.
Verticillium- you might see half or 1/4 of the wood in the pruned area is tan or darker, where the healthy wood is cream colored. The branches directly above that tan area often die, the rest may look just fine. Scattered dead leaves anywhere on the plant suggest the fungus is getting into the support branches below them, too.
Botryosphaeria-More often on stressed or injured trees, and while it can attack maples this one would be lower on the list. Cankers (sunken areas, may weep) on bark, especially at the base of branches or twigs away from the trunk.
Cytospora-More often on stressed trees. Elliptical cankers (sunken areas, may weep) on bark.
Hypoxylon-A decay fungus. On stressed or injured trees, tissue already dying of something else. Rounded, dark fruiting bodies on bark.
Nectria-More often on stressed or injured trees. Usually enters through wounds, including pruning cuts. Cankers (sunken areas, may weep) on bark. "Coral Spot Fungus" is one of the Nectrias.
Phytophthora- Soil borne, and the whole plant can be affected.

Diana

That's a lot of good info!
I realize, A lot of people don't like the black tar sealer.
But down here, Termites swarm every year. So if I wanted to seal a large cut,
Or a wound, What would you use?

Mad

Diana, Thank you so much for taking the time to write such an informative response. I cut it as you and Mad advised, and the wood was a cream color, with the exception of a small dark area, right at the outside margin. So, should I go down further, or leave it be? Thank you Diana and Mad, and the tree thanks you too.

Here is a link with some pruning basics, focus is fruit trees, but the concepts about regrowth and where and how to cut to encourage the right growth are just as valid.
Proper thing for the cut:
1) Cut into good wood. The tree will heal itself.
2) If the tree may get sunburned, then thin out some white latex paint (thin with water). This is more often used on the bark, the trunk and major branches that have been exposed to the sun after growing in the shade of the branch you just cut off.
3) Read the last line in this link.
4) Some of the fungicides or insecticides that are commonly used in the garden could be used on fresh pruning cuts if you suspect that insects or diseases can enter the plant this way. Know your local conditions, and perhaps research the University links from whichever school in your state is the biggest in agriculture.

http://homeorchard.ucdavis.edu/The_Big_Picture/Pruning_&_Training/