If that's true it is, but it's still their own fault. If they give money and become producers, they are directly responsible for it's production. If it sucks, that's on them.
Actually it wouldn't really be their fault though. Nintendo themselves did not create the game or develop it, they simply saw that Valhalla wanted to finish it and paid the money to help them finish it and in return gain an exclusive. It's the same situation as Bayonetta 2, Bayonetta 2 recieved critical acclaim but it's not because of Nintendo publishing it that made it be acclaimed, but because of how great of a job Platinum Games did developing it.
It's probably why Nintendo wants to distance themselves from Devil's Third, people might look at it and think it's a game developed by Nintendo when it's not.
Even if Nintendo had nothing to do with development, which is unlikely since much as been said about their involvement with development. As a producer you over see every aspect of a game. If they didn't see it going awry, it is completely their failing. Nintendo has produced it, they gave money for the project, their name is on it now. It is their duty to ensure it's a quality title.
Nintendo wanting to distance themselves from Devil's Third only makes them look like idiots since they funded it and every other part of Nintendo except NoA has brought it to market. Nintendo doesn't want to distance themselves from it, only NoA.