When you set group settings when creating a group GAM has to make 2 API calls, one to create the group and the other to set the group settings (which is a separate API). I have seen very rare cases where the call to set the group settings fails because it doesn't think the group is created yet. Can you confirm if the group did get created here?
How reproducible is this for you? Generally "group does not exist" is a hard error but in this case, if we are certain we just created the group we can maybe assume this is just Google propagation/sync issue and do a backoff/retry.
How reproducible is this for you?