Re: What do we do?
I know of several really talented martial arts instructors who teach out of their garages, admittedly most are BJJ folks, but that isn't necessarily evidence of fraud or poor quality. (Teaching in a garage, not doing BJJ) Sometimes it is a matter of not having enough money to open a brick and mortar dojo and not being able to find an opening with a rec center or something.
You may be right and one way to find out is to contact them on their social network site and invite them to your upcoming seminar. If he's a fraud, you won't hear anything back, or some lame excuse for declining. If he's legitimate, your invitation could open some doors and make some new friendships. What's the worst that could happen? Your concerns will be borne out and his reputation in a small area will take him out of the equation.
You could also go to Bullshido and run it past those folks. They are pretty good at unmasking fraudulent claims and teachers.