I agree that the warning sounds sketchy. If the cops were watching the place they would see him placing the letters and the last thing I personally would want is to raise the ire of the police that already have me in their sites and have my info to boot.
Could totally be a competitor trying to kill their business, OR a local resident morality patrol trying to scare off clients.
As for the police stopping customers for questioning: It happens quite a lot LGD,
If they are investigating a place, they are not looking to ward people off, they are looking to bust it. They are not sending a message, they are gathering evidence, as stated earlier by DTL.
All you need to remember is to STFU and ask if you are being detained, and if so, for what reason. Then you ask for your attorney and shut up. Not another word if it doesn't start with "Law" and end with "yer".
If they say they pulled you over for a traffic violation or some other bullshit excuse, ask to be cited and sent on your way.
DO NOT believe a word they say as they can and will lie to make a case and it's perfectly legal. Telling you that you will be let go if you give them info will only GUARANTEE that you will called in to testify or at least make a statement on record, (which you are doing just by talking to them) which means your name goes on the books.
Tough call on how to proceed, DRJH. Err on the side of caution is all I can say. You're probably best to stay away for now, which sucks because if it's bogus, it's giving the ones doing it just what they want.