Why didn't the Army raise any red flags?
This is an excellent question. On the ATF Form 4473, line F. asks if you've had mental issues. Line G. asks if you've ever been dishonorably discharged from the Armed Forces.
I believe the Army stated he was kicked out for failing to meet standards. If mental issues were the cause of him not meeting standards, the Army had a public safety responsibility to document it.
A members actions have to be considered reprehensible for a member to receive a dishonorable so I see why only failing to meet standards didn't cut the mustard there. If mental issues were the reason he failed to meet standards, it should have been documented. Perhaps some sort of statement in the remarks section of the DD 214 would have created a paper trail of mental instability.