Multiple reasons exist.
Weapon of Mass Destruction
Any large body in orbit is a potential weapon of mass destruction. Drop a 20-ton rock from orbit, and it may not survive, but if you do it right, it creates a crater some 100m across.
While NASA is not planning on using deadfall ortillery, the possibility is a political issue.
Ownership and access
Legally, all natural bodies in space are common property of all Earth's peoples.
Putting it in LEO would make it accessible to a variety of states that are seen as politically untrustworthy. The key example is North Korea - they have demonstrated the ability to launch SRBM's, which are precursors to a space program as well as to ICBMs. (The initial US space launchers were in fact developed as part of ICBM programs.) The concern that these nations may reach and deorbit a body as a form of terrorism is a real and present (but low probability) threat.
A Lunar Orbit location has far less access to everyone, however, it's a near total bar to most nations. The US, Russia, China, India, and the EU have the capability to get there, as evidenced by the ability to land lunar rovers and install lunar orbiters. It's still close enough for most real-time experimental controls.
More margin for error
The lack of atmosphere ➀ allows for a miss to not result in slowing and impact, nor to result in surface melting of the body.
Less overall energy is needed to put items into a stable Lunar orbit than a stable Earth orbit. The speed change needed is less, and thus the duration of acceleration and total thrust can be less.
Less to impact
Fundamentally, inserting anything into Earth orbit involves hitting the mark at the right time and speed to not hit anything else in Earth orbit. There are huge numbers (thousands) of tracked items, and hundreds of useful items, including a manned facility, that might be affected.
Lunar orbit is far less crowded, and no lunar orbiting equipment is essential infrastructure.
Much less impact on satellite orbits.
If I recall correctly, the intent is to move an asteroid of sub-kilometer diameter - but preferably over 100m diameter. These are objects large enough to have a noticeable effect upon other orbiting bodies. The cumulative effect could be catastrophic. The impact is tiny, but would be persistent and affect all other orbiting structures notably.
Less tidal stress
Tidal stress being the difference in pull between the ends of an object in orbit around a more massive object. Lunar orbit results in far less tidal stress than Earth orbit, due to the much lower lunar mass. (Note that Earth tidal stress will still exist in lunar orbit, but will be considerably less than even geosynch.
Proving the tech doesn't require a Earth orbit.
The technology in question is the ability to put asteroids into desired orbits. The principles are exactly the same whether that's Earth, Lunar, or Martian orbit. Success will result in proving the technology.
A base for future science
A lunar orbiting asteroid is a good base for further lunar and deep space oriented science. Being closer to the moon, it provides relay access for far-side rovers, as well as a location outside the van allen belts to test various practical radiation shielding approaches without having to land on the moon itself.
➀ Lunar atmosphere is present, but is at so low a fraction of a pascal at surface as to be safely ignored for orbital purposes.