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I can't see the rhinophores (the little "horns" on the head) too clearly, but I'd guess Oxynoe antillarum - it feeds on Caulerpa, probably Caulerpa racemosa or Caulerpa chemnitzia (it might also go for C. chemnitzia var. turbinata or C. lentillifera if you have any to offer it, but I don't know for sure).
There are a few other species that it could potentially be, but they're less likely (and they'd either feed on the same Caulerpa species as O. antillarum or on things like C. cupressoides; either way it'll feed on a Caulerpa species).
If they think something is trying to eat them (which I'm not aware of many reef-safe things that might try to eat these), they'll secrete a milky white substance that is toxic, yes - not much is known about the toxin except that it likely comes from concentrated substances found in the Caulerpa they feed on, and that it's toxic to fish. I doubt it would be an issue in a decent-sized tank or to larger fish, but in small tanks with small fish it could be. That said, if you're concerned about it you can run carbon and keep some mixed saltwater on hand for an emergency water change, and that'd likely take care of the toxin if it's released.
They may also drop their tail (which can regrow) if they think they're being preyed upon.