Though the details are a bit murky, it began with reports of a "creature" in the graveyard. The story was likely generated by one of the two main players in the incident magicians / exorcists / full-on maniacs Seán Manchester and David Farrant. Eventually the story became that it was a vampire (a Transylvanian prince brought to the cemetery in the 1800s) and Manchester and Farrant both vowed to hunt down and kill the beast. (They also pronounced each other charlatans.)
As described in the (not to be fully trusted) book Beyond the Grave, "many claimed to see a particular creature hovering over the graves. Scores of 'vampire hunters' regularly converged on the graveyard in the dead of night. Tombs were broken open and bodies were mutilated with wooden stakes driven into their chests. These stolen corpses, turning up in strange places, continuously startled local residents. One horrified neighbor to the cemetery discovered a headless body propped behind the steering wheel of his car one morning!"
Read the whole story at Atlas Obscura. Link
(Image credit: Flickr user Leo Reynolds)