Well, it's a rather complicated story. First of all, I think you have to decide perfectly what you want with him. If you really feel sure that you want to start a relationship with him you should start flirting with him or give him hints subtly. If you think that might not work, you should tell her directly that you are in love. From what I read I think he has feelings for you and has looked for the way to get closer of you. He had a relationship with one of your friends because you guys are nothing, it's something totally normal, just like you could have had a relationship with another guy. He might be talking to you about someone else to see if you're feeling a little jealous.

It's clear you have think if you want to stay her friend by risking her falling in love with someone else and you lose the chances with that person you,ve been in love for a long time or clarify everything, with the risk of losing friendship, but also with the possibility that it belongs to you and can start a relationship.

PS: I'm sorry if it's misspelled, I'm learning English :(