Theobromine is the active principle in chocolate. It is very similar structurally to caffeine, and has similar, though milder, effects on humans. I would expect that using cocoa mulch would be similar to spreading chocolate around your yard, as far as dogs go. Most dogs will eat chocolate and get sicker than, well, dogs on it. Death is an uncommon but hardly unknown side effect.
The deaths are probably from the cocoa fibers getting "stopped up" inside the dog............