It was because fintech companies didn't have enough to cover the trades. When you trade, it's not actually instant. Everything has to go through a clearinghouse. You buy it, the broker puts in a request to buy it, the broker tells you it's been bought, but then it's up to a series of brokers and clearinghouses to make sure the trade actually goes through on the back end. Robinhood, Webull, etc are tech startups, not long standing financial institutions with decades or centuries of capital/clout backing them. They simply didn't have the money or credit to let people keep buying shares.

The SEC investigated this issue afterwards, it wasn't the SEC that told them to do it or stepped in. Yes, regulatory bodies like the SEC are often captured by the industries they're supposed to watch over. But that doesn't mean the SEC is literally on the phone with every broker guiding their hand.

The problem was people was putting a lot on a relatively small and new company. But because reddit and internet it turned into a conspiracy that Robinhood had a grudge against their customers or the CEO had a personal grudge against GME.