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This bug is created as a clone of upstream ticket:
https://fedorahosted.org/freeipa/ticket/4450

From https://www.redhat.com/archives/freeipa-users/2014-July/msg00081.html

{{{
$ ipa user-add "bill.mathews" --last="Mathews" --first="William" --email="blah" --phone="xxx-yyy-zzzz" --setattr userpassword="{SHA}bunchajunka" --setattr o="University of Tweedle" --gidnumber=65534 --uid=2000063
}}}

And I get:

ERROR: Constraint violation: invalid password syntax - passwords with
storage scheme are not allowed

Seems to be caused by https://fedorahosted.org/389/ticket/47389 and
fixed by https://fedorahosted.org/389/ticket/47753 which is not yet in a
release AFAICT.

It may be that a 389-ds release fixes this but IPA should have some sort of test or CI to verify that migration is working prior to release.

Fixed upstream:

master:
15eb343b9c235a1ca3a6cc48f730590949d439ec Allow hashed passwords in DS

ipa-4-1:
15eb343b9c235a1ca3a6cc48f730590949d439ec Allow hashed passwords in DS

ipa-4-0:
47825306169b941902a443b01ac5a51991dcfb95 Allow hashed passwords in DS

Created attachment 977184 [details]
verification steps with console output

Verified.

IPA Version:
============
[root@ipaqavmd ipa-tests]# rpm -q ipa-server
ipa-server-4.1.0-13.el7.x86_64
[root@ipaqavmd ipa-tests]# 

Please see the attached file for console output.

Since the problem described in this bug report should be
resolved in a recent advisory, it has been closed with a
resolution of ERRATA.

For information on the advisory, and where to find the updated
files, follow the link below.

If the solution does not work for you, open a new bug report.

https://rhn.redhat.com/errata/RHSA-2015-0442.html