Let me preface this by first saying that I am not a veteran.
"The Stolen Valor Act of 2013 was signed by President Barack Obama on June 3, 2013. The Act makes it a federal crime to fraudulently claim to be a recipient of certain military decorations or medals in order to obtain money, property, or other tangible benefit." As long as the court system sees veteran status as a decoration, he would be in violation of this particular federal law. In addition to that, it's just straight up fraud. If I put down that I have 18 kids and I don't, that's illegal. He is subscribing to benefits that aren't his. Your acquaintance, to have received an ELS as opposed to a discharge, wasn't present in the military long enough to qualify for benefits. Reporting federal crimes is easiest going through the FBI's reporting system.