I had some friends that were pulled over in WI this weekend for standing on the pegs. Older group, no stunting, just stretching out. No tickets issued. I did a quick search and couldn't find the law that says it's illegal in WI but I did find a state sight that mentions twice to stand on the pegs when encountering railroad tracks and potholes.
My guess is this LEO was just using it as an excuse for a fishing expedition.