For the most part this the Coast Guard's juridiction... and they are going to be somewhat sympathetic to lobster man because he, like them, makes his living from the sea. They will give him a lecture if he is endangering the safety of divers, but will probably not summons him for violating the proximity to a diving flag because he has traps in the water and he will make up a story for his 'eradict' driving. ('Funny sound coming from my engine when I go around in circles'... didn't see the flag, not the right size... etc...)
But, if he is intentionally obscuring his registration that falls under motor vehicle. If you can get a picture, more than likely the local bay constable will know the boat/fisherman. That is a summons, and bay constables are very big on safety, but not on hurting the local baymen. He will probably be willing to have the guy spend a day at the local court house, or in lines at the DMV. I bet if you get a picture of the obscured registration, and one of the boat (the local bayconstable will know the boat) the fisherman will get a summons, and a little lecture on leaving divers alone. He, of course, is going to claim divers are poaching his traps and he is just protecting his livlyhood. Of course, that is no excuse for creating a dangerous situation.
If you can positively identify your flag in his possesion there is something beyond simple theft there (endagering the welfare... or whatever, quite possibly a felony in Mass). Conceivably if a diver was killed by a passing boat and he had removed the flag, some DAs would file manslaughter or murder 2 (reckless endangerment). But, if this situation gets that far, it has gone way too far. If he refuses to discuss the situation, continues to steal flags (with witnesses) and creates a dangerous situation, take the photos and register a complaint. Tell the local police you are alerting local dive networks and asking people not to spend money locally until this is resolved and they will have a little incentive to talk to him.
In the meantime, if you want to 'get' the lobster man, tie a 25' frayed rope to his trap buoy. (Many of them do this way off shore to hassle fishing boats who are either poaching or tieing up to their pots for the nights... dragging them along the bottom). Most onshore lobster dudes don't put a trailing rope and approach their traps against the current to avoid their line. A 25' worn out rope will get entangled in his prop. It isn't going to do damange, it is just a pain for him to pull up his outboard and cut it out. Even more difficult with an I/O and he'll have to jump in the water if it is an inboard. (Then, he is on your turf).
It is not a fire either side should wish to fuel. Espcially this year when lobster men from New Jersey to Maine are having a very difficult year... Have some sympathy for him (espcially if they issued 10 trap permits this year), but, don't endanger yourself over a few bugs.