It's most definitely not legal in-universe, as this is a black market setting, but it's radically realistic. Lytro cannot single handedly stop a whole system.
I think if it grossed people out, then it was effective. Because even in real life, these things happened for centuries in many places.
But to answer more plainly, lets say Lytro does try to attack these men, there's nothing stopping them from calling more men in from the rest of the circus. He's here alone, and the worst-case scenario is he gets himself, Malaki and the kids killed by direct intervention.
I believe sadly this is the reason he didn't straight murder everyone.
Bro is an imperial knight, what was stopping him from killing everyone but the victims?? Unless child sexual slavery is legal in this verse? But then why would the author make such a thing legal??