Reader's Digest(tm) version:
Knucklehead #1 illegally converts rifle to 3 round burst. He then loans it to knucklehead #2 who he barely knows and tells him not to use third position. Knucklehead #2 goes to range and curiosity gets the best of him and he tries position #3 and is questioned about it. Knucklehead #1 proves himself not too bright by attempting to retrieve his illegal weapon from the police and tells them that is nothing compared to his other guns. He is now a convicted knucklehead.
No I don't agree with the law, but this guy is just stupid.
Actually I think that your version is a lot closer to the truth than the original article. I don't know the details, wasn't there, and may be naive but it would greatly surprise me if the BATF and courts would convict someone for just having a worn out gun.