He led the team that excavated "Sue", one of the largest and most complete specimens of Tyrannosaurus rex, which was the subject of a legal dispute resulting in its seizure and public auction.

In 1996, Larson was convicted of customs violations related to failing to declare money he had brought from overseas, and served 18 months in prison.

[1][6] On 14 May 1992, a raid led by the states U.S. Attorney Kevin Shieffer with 35 FBI agents and 20 National Guardsmen recovered the Tyrannosaurus rex named "Sue" from Larson's commercial fossil dealership, the Black Hills Institute of Geological Research.

[2] Although Larson had paid the landowner for the find,[2] Williams had reportedly changed his mind,[1] and the U.S. Attorney charged that the fossil had been illegally taken from land under Federal administration, because the deeded land fell within the borders of a Native American reservation and the parcel itself was held by the Bureau of Indian Affairs for the benefit of its Native landowner.

[7] Following a trial on charges unrelated to "Sue", Larson was found guilty and convicted of two felony counts for United States customs violations involving cash brought from overseas, as well as two misdemeanours relating to illegally taking two fossils from federal land.

[9] Larson ended up serving 18 months[1] in minimum security prison at the Federal Correctional Complex, Florence, Colorado.

Larson and his ex-wife Kristin Donnan wrote the book, Rex Appeal, about the U.S. Government taking possession of "Sue" following its excavation.

[3] Larson has developed a controversial standing in his field as the majority of academic paleontologists object to any organization's commercial selling of fossils.

[2] The Society of Vertebrate Paleontology (SVP) wrote a formal letter to United States Attorney Kevin Schieffer, endorsing the Federal government's raid of Larson's company, the Black Hills Institute, and seizure of "Sue".

At the time, Robert Hunt Jr. of the University of Nebraska, secretary-treasurer of the SVP, stated that "America's national heritage of fossils is being bled away by commercial operations, which should be stopped.