Whatever you do, first make sure that the situation is indeed as described in the CAA letter. Both the FE and the people at the CAA are human and make mistakes. It may also be a simple case of the FE having properly extended his authorization, but the paperwork stating this getting lost en route to the CAA. Or something simple like that. In my experience FIs and FEs don't normally let their licenses and authorizations lapse by accident, but continue teaching and examining on them.
So something (embarassing?) happened, certainly, but do not make it worse for yourself by going in with guns blazing. Figure out what truly happened before making demands.