Those arrested could be charged with violating the Digital Millennium Copyright Act, specifically its provisions dealing with the circumvention of copy-protection controls. Although the raids won't wipe out the modding community, it is likely to drive sales of mod chips further underground—especially since some storefront retail operations were targeted in the raids.
Despite the fact that there are numerous good uses for mod chips, a few bad apples are sure to ruin the bunch. These raids were affecting U.S.-based entrepreneurs only, though it is possible they may affect availability in other countries as well. Unfortunately, these sorts if raids do have a negative impact on the benign portions of the modding community as well, as the article brings out.
The biggest issues probably stem from those modders who sell pirated games and are re-selling modded consoles.