The wording is incorrect on this issue. It’s not that a person fails an SF86 like it was a test. When the information the applicant fills out on the SF86, during the security check does not match up with discovery then the red flag is fed back to the management with a recommendation depending on severity. It might be a simple typo or accidental omission with is easily adjusted. An outright red flag rejection means a deliberate attempt to deceive has been detected.
Lying on the form is the same as lying to a federal investigator (e.g., FBI). Applicants are warned of this and potential penalties.
I agree with most of your summary. However, there are some disqualifying things right out the gate. For instance, and not related in any way to these people, membership in the communist party used to rule people out. Lying about it would have been even worse, of course. But, just to be accurate, you cannot say you’ve done certain crimes either.