What a Mess!

[umpire99]

Worked an earlier game last night and stuck around for the second game. Here is what I saw:

FED rules. R1 and R2 with two one out. Deep fly ball over F8's head. F8 chases down the ball and makes a diving catch. U2 is standing right in front of second base (didn't go out on the play). After the catch is made, U2 makes absolutely no signal. Now we have a runner on every base as both runners moved up and the batter is standing on first. While everybody was confused, the centerfielder got the ball in and the shortstop tagged second base. While the umpires were talking it over, the defense realized that R2 had tagged up and R1 had not. The shortstop then took the ball (while dead) and tagged first. The umpires came out and said that U1 had seen the obvious catch and that the runner on first was out for not tagging up. What was done right? What was done wrong?

More on the umpires comments later.