I have the feeling its gonna turn out that Pistol Pete's charges were fabricated by the Cartel in order to get rid of him after even the Don couldn't beat him. I mean, this chapter clearly shows they already have ins with local corrupt police officers, so it seems like the type of thing they can do.
Though if that was the case, I doubt the Don would be surprised to see him in the Convict Colosseum. I mean, if you put one of the world's best fighters in prison what would you expect is gonna happen?