I am thinking that the bypass valve is opening a small orifice for fluid from the wheel motors to circulate, and BYPASS the pump. In essence, tow slow. This will generate heat, and if the unit is towed or pushed for a long period, excessive heat will build up.
That fluid in the case drain, is forced there by the charge pump as excess fluid, and to help to cool the pump. If the charge pump is not running, no fluid is being sent to the case drain. Not only that, if the wheel motors are bypassing some fluid, there is no makeup fluid from the charge pump to refill the closed circuit. If you tow long enough, the pump may be empty of fluid, and when you start the motor, the pump will cavitate, and perhaps destroy itself. Just my humble opinion, and I am sticking to it, unless I am wrong.