As I understand it to get a MA teacher closed down or sued for teaching fraudulent martial arts would require a strict legal definition of what a martial art is. There is such a massive range of genuine arts being taught that any definition would have to be fairly vague and so the fraudulent teacher should have no problems bypassing it.
BTW many year ago a guy came to our school, stayed for 6 weeks then left. A few months later we heard he had set up his own class and was teaching students moves he had seen on Bruce Lee movies! Obviously guys like this won't be able to keep this up for long - nobody can be that gullible for more than a few weeks surely but also trying to sue him would be equally difficult. What he was teaching would be called martial arts to most non-martial-artists who don't know any better.