Pretty egregious, and something which one would hope you could sue Google for. In this case aiding in the infringement of Copyright because it is the Content ID system, with a borked refusal policy, that are allowing UMG to pirate the artist's music and to make a profit from it. Not only from the artist but anyone who was paying license fees to the artist are now having their video revenue get hijacked by UMG. Seems…
From the facts described, UMG is fraudulently interfering with Google's relationship with a legitimate business partner in order to commit criminal copyright infringement.
Certainly, someone should be prosecuted -- by the DOJ, not just the victim -- but I don't see why Google should be the primary target (if anything, Google should be among the plaintiffs in the civil action.)