As far as I am aware, they weren’t punished for using AI specifically, they were punished for straight up copypasting AI output thus violating cheating policies (in addition to hallucinating non-existent citations). Whether it was copypasted from AI or from another real person is irrelevant, the AI part just made it easier to prove in this particular case.
The school even affirmed in their statement that AI was allowed to be used for brainstorming topics or identifying topics (quote directly from the article):
“Although students were permitted to use AI to brainstorm topics and identify sources, in this instance the students had indiscriminately copied and pasted text from the AI application”