18 USC § 701 - Official badges, identification cards, other insignia
Whoever manufactures, sells, or possesses any badge, identification card, or other insignia, of the design prescribed by the head of any department or agency of the United States for use by any officer or employee thereof, or any colorable imitation thereof, or photographs, prints, or in any other manner makes or executes any engraving, photograph, print, or impression in the likeness of any such badge, identification card, or other insignia, or any colorable imitation thereof, except as authorized under regulations made pursuant to law, shall be fined under this title or imprisoned not more than six months, or both.
Again, this is a matter of selective enforcement...but it is allowed by the law. A really sharp "free speech" civil libertarian attorney could probably get this overturned, but, somehow, I doubt that one would take this case up pro bono.
“of the design prescribed “
Different design.
“Peeping while you’re Sleeping is NOT part of their design.
I have an ATF shirt with the Scales of Justice on it on the front and Reads: Alcohol Tobacco Firearms
Back reads: Got Chips?
The actual name of the agency is:
Alcohol, Tobacco, Firearms, and Explosives
Also, their official symbol is not the Scales of Justice
Walked by cops and Sheriffs with no comment.
But, I don’t push my luck and CCW while wearing that shirt.

I find the incorrect color (solid red) to be a symbolic of pro-communism.
That is highly offensive.
So, DHS and the NSA will be getting right to that?
.
18-usc 701 is to punish those who use said to impersonate or otherwise defraud. The particular case at hand is a prody and no intellignet or even semi intelligent individual would be swayed to believe it was representing the actual item.
“Sadly, the DHS and the NSA have every right to do what they are doing: “
No they don’t.
The designs were altered from the originals. They do not meet the definition of this law.

You can drive a truck through that statute.
Even a bad lawyer could rip it apart.
A tee-shirt with the motto “Peeping While You’re Sleeping” is not a colorable imitation of a badge, identification card or other insignia.
It is a free-speech expression protected under the 1st Amendment.
You mean like when Obama used the Seal of the President of the United States with his name
viz even more copied presidential seals- the symbol of the executive branch of govt
http://www.youtube.com/watch?v=bf_-IOlXKOI http://www.youtube.com/watch?v=rvot6VbWGS8 http://www.youtube.com/watch?v=C_Sp3wno4G4 http://www.youtube.com/watch?v=bnTSxONpO4o
I think the t-shirt is not a badge or insignia.
This is not about impersonation...it is about parody. Parodies are protected speech.
The purpose of 18 USC § 701 is to prevent individuals from making fraudulent IDs that would lead somebody to think that the holder of the ID/insignia was a government agent. These parody shirts do not do that.