You are wrongish.
Check the link. All those M16s (and F/A AR 15s) for sale are transferable. Some of them were originally owned by a police dept. But they are marked M16 and they were in the registry for civilian ownership before 86.
From what I am told, Colt was pretty strict about M16s only going to law enforcement. If a dealer got a dozen M16s and couldn't show that they all were sold to a LE agency, Colt wouldn't do business with that dealer anymore. That did not stop dealers from transferring M16s to civilians though.