The way it's supposed to work is that a number of investors do due diligence, decide on the price they think it's worth it to them, and make their bids. Once enough pledges been made, the lowest price is given to all bidders.
However an investor may decide to join in without any effort put into due diligence. Instead he will decide to bid high and rely on others to set the fair price.
First, the "honest" investors end up paying for the free riders. Second, the free-riders end up crowding in and bidding up the price above the reasonable level. Consequently the "honest" investors put all the effort into it and end up with nothing to buy at their determined price. In the end "honest" investors end up not participating at all, so the Dutch auction thing just fell apart.
In short, smart money was in charge setting correct price, but smart money was crowded out by dumb money. This problem is not unique to Dutch auctions, but it appears that that's where it is the most acute.