The most likely explanation is that they generated the weak key externally, imported it into the HSM, generated the CSR from it, and finally had Root CA sign it.
A FIPS HSM does not forbid one to import keys into it.
A FIPS HSM does not forbid one to import keys into it.
The Root CA must sign requests after authentication, but a "manual" approval is also accepted if done with the appropriate oversight with witnesses (clearly not the case here).