He is not full of shit. About 2 years ago I was told by one of my mates not to race a metallic blue Skyline. It had been hanging around Sunnybank (Mains Rd.). They have WRXs, Skylines, Magnas, highly moded SS commodores...The works. They have access to everything. In fact, a police officer is never off duty. They can arrest anyone, anywhere, anytime, for anything. They can ensight anything they like. 'Entrapment' is a pipe dream. It will not save you. You would have to have physical evidence of a police officer ensighting a race. They are (supposedly) bound to uphold the law. So their word has alot more weight than yours. They will simply argue that you had a choice not to race. And you made the wrong decision.
I would heed the "no racing at the lights" bit. Police have the law on their side....Unless you don't have number plates and you have like 600hp.