The flare pistol was and is completely legal. There were many versions of this same thing made. Penguin, Colt, I believe S&W - they are all perfectly legal. None have rifled barrels, none are made to chamber any known cartridges, the ends are made of aluminum and not appropriate for firing any ammunition. On occasion, when I find one of these cheap, I will buy it. I have 3 versions and all are 100% legal. Hopefully you kept the box and tear gas cartridges - those are probably more collectible than the pencil, given its condition.
Here's an "Al Capone" tear gas pen on gunbroker:
http://www.gunbroker.com/item/698035900
Here's another kind:
http://www.gunbroker.com/item/695176573
One made by Colt:
http://www.gunbroker.com/item/696373674
Here is a youtube video showing a genuine AOW pen gun. If not registered with BATFE, it would be illegal to have:
https://www.youtube.com/watch?v=1_JtG-qbyxg