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The type of modifications done usually mean that the book itself would attract copyright. This person who has just copied everything would be breaching the copyright. I know vaguely that the US has a registration system for copyright and requires the use of a copyright symbol on the work, but am not sure of the consequences of not following that system. However, in Australia, the United Kingdom and likely the other common law countries copyright just exists, with no requirement of registration or requirement to show the copyright mark on the work.
There is then a question of whether the Download blurb waives such copyright. There is a reasonable argument that it does not, because although it asserts that the work is in the public domain it does say where it is not it is published with the permission of the copyright owner, which in this case would be the member or members making the modifications. People are clearly granted a licence to download and read the book, but how far does that licence extend? To verbatim copying and exploitation for commercial use?
I think the Library needs to be changed to an appropriate license which prohibits this type of behaviour. Certainly it should happen for any new uploads. I agree one of the creative commons licenses would likely be a good choice. This would require the co-operation of the "copyright holders", of course, not an easy task.
Amazon, Kobo etc should also be notified of what is happening, and if they will not take the books down, then asked to show clearly on the books page where the book has come from and where it is available for free. In many countries consumer laws could regard not doing so as "misleading". They could even be offered the contents of the library to be "sold" for free on their sites.
The situation is quite a complicated one, and raises many issues. US copyright should not be asserted without advice from a US lawyer.
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