Where is the crime?
Maybe some of you leagal beagles can find the crime (buried in the ATF regs?). If the rifle isn't full auto, he isn't in posession of an unregistered full auto. If the rifle has the required number of US made parts, he is in compliance with the other ATF regs (922, etc.).
All he has done is to alter the safety (selector switch) so that it moves to another position, a NON FUNCTIONAL position. This would not, in and of itself, seem to violate the law (in my opinion).
However, IF his intention was to convert the gun to full auto (illegally -and that is the only way it can be done nowdays) then he may be guilty of conspiracy to violate Federal Firearms laws. And that is a crime, even if no firearms are actually altered to full auto function.
Like a silencer that does not work, you can still be guilty of a crime, without actually producing a functional weapon.
You know the guy, its your call. If he bragged on it to you, odds are he did it to someone else also. If you believe his intent is to violate Federal law, then you should act accordingly.