Going down the route of "find crimes to charge him with" is a bad idea for many reasons, one being: if it becomes commonplace to bend the spirit of laws just to send a message, then that will make the already-too-powerful courts even moreso.
For me this doesn't pass the sense test: should a person be able to knowingly, intentionally fake the results of a scientific experiment in order to secure a grant of taxpayer money? No. No more than you should be able to fake the 'results' of your yearly income, say, for the purpose of receiving welfare.
However, in this case since the target was a federal agency, presumably it is a federal crime already. More interesting I would think is that even if the US attorney doesn't want to press charges, I'm sure the AG of Iowa (and possibly Maryland) could.
As for prosecution, the agreement to get only three years is awful; Consider Leo Paquette - who kaiboshed a grant idea in (secret) committee and subsequently stole it - and got a 5 year suspension of grants. This was an affront to the rules of granting, not science itself; and yet got a harsher pushishment; shows where the priorities of the authorities lie.
Are you suggesting that science would advance at a comparable pace with only private funding? Why do you point to a single example (remember, there are several Nobel prizes given every year) as if it proves that it would?
Alternatively, do you think publicly funded science doesn't produce useful results? Remember that the market automatically assigns a value of $0 to almost every useful research result due to the fact that they are not effectively excludable -- you can't use a university's (or lab's) income statement to judge value creation.
> the agreement to get only three years is awful
As with all punishments, the official sentence is only the beginning. He has been fired from his position and given the insanely competitive environment in the biosciences (often hundreds of applicants for a single professorship), he will almost certainly never find professorial work again.
Maybe he's not saying that. But I worked in a government-funded research lab for two years, and I have no choice but to say it: science would advance faster if it were privately funded.
Maybe a YC for science is in order?
Learn some history:
You would think, but this guy:
http://www.scu.edu/engineering/bioengineering/Zhang.cfm
Was involved in several retractions that were almost certainly fraudulent. Officially. Unofficially, they were fraudulent (I worked fairly closely with several of the prinicpals in the situation - minus Zhang and Schultz, of course, although Schultz was on my committee - who are convinced the material were made up):
http://pipeline.corante.com/archives/2010/01/07/extortion_re...
It's not as prestigious as the place he was before, but he seems to be doing okay. The system protects its own.