I think the claim you want to make is: PayPal was repeatedly warned, but did nothing. Anyone scammed after the first few warnings to PayPal should sue PayPal for negligence.
They finally escalated my enquiry on the executive level and acknowledged that they obliged to investigate. They also provided me with my rights, e.g. if i'm not satisfied with how they handle things that I can bring it up with the Australian Financial Compliants Authority. Seems to be region specific but I assume similar things are in place for other regions.
I don't think they are legally bound to investigate anything, unless law enforcement asks them to.