I dislike their use of the name “FSD”, but it was never ever defined as “level 5”. Presumably it was/is meant to achieve at least L3 or probably L4, though.
Today it is of course L2. Even the “FSD Beta” stuff is, for the moment, L2.
They certainly have the intent, and belief, that they can deliver an L3+ mode, so I don’t think “fraud” is an appropriate word. However, I do think they owe something to people who paid for the FSD upgrade, especially those who upgraded from EAP and received nothing for it before selling their cars.