What you're describing would actually be a colony. Those Candidate pins are worn by colony members until they recieve a charter. Never heard of a colony going away like that though. We took 3 years to recieve our charter as did the new chapter down in Nagodoches, TX.
It also sounds extremely similar to the way we were brought on -- it wasn't very effective which is why we took 3 years to get our charter.
They've completely retooled the expansion/chartering process and after a 3 year drought (McKendree College in 1999) we were founded in 2002. Then 3 more chapters already founded this year (that's not counting recharters).