> he "conducted without entitlement to a paid job" test, as the "fellowship" is clearly being undertaken with the hope of receiving a full-time job.

"A hope of X" and "entitlement to X" are not the same thing. I tend to agree that this is likely illegal, but it seems to have been very carefully crafted to have at least a superficially-plausible argument for compatibility with the primary beneficiary test. I don't think it was done in ignorance of the law, but a careful and deliberate attempt to hack around it.