In 2003, Chong was targeted by two American investigations code-named Operation Pipe Dream and Operation Headhunter, which sought out businesses selling drug paraphernalia, mostly water pipes. Operation Pipe Dream was run out of Pittsburgh, PA. US Attorney Mary Beth Buchanan oversaw the case. The estimated costs of Operation Pipe Dream was over $12 million dollars and included the resources of 2,000 law enforcement officers. 
Tommy Chong was charged for his part in financing and promoting Chong Glass/Nice Dreams, a company started by his son Paris. Mr. Chong’s case never went through a federal trial; instead Mr. Chong came to a settlement with US Attorney Mary Beth Buchanan’s office in which he admitted to distributing 7,500 bongs and water pipes on the Internet through Nice Dreams, a family company that was named for one of his movies. Chong agreed to plead guilty to one count of conspiracy to distribute drug paraphernalia in exchange for non-prosecution of his wife, Shelby, and his son, Paris. Tommy fully cooperated with the government and was the first of Operation Pipe Dreams’ defendants to plead guilty. 
At Mr. Chong’s sentencing, Assistant US Attorney Mary McKeen Houghton stated in her sentencing arguments that Tommy Chong "used his public image to promote this crime" and marketed his products to children.  US Attorney Mary Beth Buchanan also was present at the sentencing of Mr. Chong and released a statement to the press stating, "there are consequences for violating the law, even if the violator is a well-known entertainer like Thomas Chong." 
While Mr. Chong argued for community service and home detention at his sentencing, the district judge denied Mr. Chong’s requests and sentenced him to 9 months in federal prison, a fine of $20,000, forfeiture of $103,514, and the loss of all merchandise seized during the raid of his business.  Chong served his sentence from October 8, 2003 to July 7, 2004.
While government officials denied that Chong was treated any differently from the other defendants, many felt that he was made an example of by the government. Soon afterwards, marijuana advocates started the Free Tommy Chong! movement that called for his release. The controversy over Tommy Chong’s prosecution centered on the rationale behind focusing on Tommy Chong opposed to his son, Paris, the disparity in sentences that Tommy Chong received compared to other defendants, and the tactics that the DEA utilized in carrying out the investigation. 
Paris, Tommy’s son, had started the Nice Dreams in 1999. At the time of the indictment period, Paris was the CEO of the company that was the center of the investigation. Paris was never charged with a crime in relation to the investigation. When asked why the government had focused on Tommy Chong opposed to the company’s CEO, Paris, US Attorney Mary Beth Buchanan responded that “Tommy Chong was the more responsible corporate officer because he financed and marketed the product.” 
Of the 55 people targeted in the investigation, Tommy Chong was the only one without previous convictions that received jail time.  When question on the disparity between sentences/fines that the other 54 individuals received compared to Mr. Chong, US Attorney Mary Beth Buchanan stated, "He (Tommy Chong) wasn't the biggest supplier. He was a relatively new player, but he had the ability to market products like no other." 
In investigating the operations of Nice Dreams, federal agents posed as head-shop owners from Pittsburgh’s neighboring Beaver County and plead with Paris to sell them his pipes through the mail to a fictitious shop in Beaver Falls. Paris had set in place a company prohibition against selling to Pittsburgh or anywhere in western Pennsylvania.  The prohibition was put in place in response to the successful federal prosecution of Akhil Kumar Mishra and his wife, Rajeshwari, whose two head shops sold drug paraphernalia in the city’s downtown.  To date, it is unclear how the prohibition was broken and there exists differing accounts as to who broke the company policy which resulted in the action that brought about the ability of the US Attorney to argue that jurisdiction for the crime rests in Pittsburgh opposed to California, the base of operations for Nice Dreams. 
Since his release, Tommy Chong has been an avid critic of the case that has been brought against him. In December 2004, Mr. Chong was to appear in an off-Broadway in a show entitled The Marijuana-Logues, a parody of Eve Ensler's The Vagina Monologues. His legal concerns, including that audiences were actually smoking marijuana in some of the shows early in its tour ultimately caused him to quit the show.
In 2006, Chong wrote a book about his experiences in jail and his interest in meditation, called The I Chong: Meditations From The Joint (ISBN 1-4169-1554-0). There was also a documentary film chronicling the Drug Enforcement Administration raid on comedian Tommy Chong's house and his subsequent jail sentence for trafficking in illegal drug paraphernalia entitled a/k/a Tommy Chong.
Seizure of a/k/a Tommy Chong DVD’s
On May 7th, 2008, federal agents raided Spectrum Labs on an investigation related to Spectrum Labs’ detoxication products. The FBI/DEA utilized in the raid were under the direction of the Pittsburgh Office and the US Attorney Office overseeing the investigation was that of US Attorney Mary Beth Buchanan. In executing their search warrant, the federal agents seized over 10,000 copies of Tommy Chong’s yet to be released documentary, a/k/a Tommy Chong. 
It has yet to be determined exactly why the DVDs were seized during the raid. Tommy Chong has speculated that the seizure may rest with prohibitions against one benefiting financially from a crime; however Mr. Chong has not released publicly that he has been charged with such an offense.