He is listed on the team's restricted list. So, it's completely legal.

In MLB, the restricted list is a contract status where the player is still associated with the team but inactive (and the roster position is freed up to be filled). The player can be traded to another team, become active again, etc. This status can be used when a player has major legal or health issues (in this case, it's uncontrolled bipolar + schizophrenia).

Is it really employment fraud? It seems the contract and terms would be pretty clear. Generally you have to knowingly misrepresent a fact for something to be fraud. It seems this is all out in the open.

How is it fraud?

How is this any different from “gardening leave”?

They’re not even paying him.

In the scope of these things, this is pretty above board.