A GOOD QUESTION
If this truly is the case, then the implications are potentially very bad. If the flight is being conducted 'illegally' by a PPL holder, then should any sort of incident/accident occur, then I doubt if the insurers would be too keen to hand over wads of greenbacks! Secondly, this sort of conduct hugely damages the reputation of all in the flying community, with the media fallout further tarnishing GA's already delicate reputation (vis...Low Flying, Noise etc etc). Likewise, it is morally unacceptable to condone by inaction such a dangerous activity being perpertrated on an unsuspecting member of the general public.
However, I endorse the comments above that such matters should be placed squarely into the hands of the regulators and the enforcement branch of the CAA. Naturally, the only option is to report your suspicions and 'allegations' (As until they are proven they can not be said to be accusations!) I am sure that those with a finer legal brain than mine will correct me if I am wrong, or offer further more relevant advice!
Tailwinds