I am the ref who started the dual on the whistle.

To answer your question, the second official on the mat has the responsibility of looking for illegal holds during a fall situation. In this case it was determined that the hold had become illegal as it turned I to a choke. When the coach approached the table and asked a question about the hold, the officials had a conference and determined the illegal hold was seen before the fall was called. The penalty was applied and the match continued.

I personally was not in a position to see the hold or how it became illegal, as I was in the stands nursing my injuy.