I get that, but the financial links between the players here doesn't look good, even if it's all legal.

Citadel bailed out Melvin. Citadel is RH's biggest customer. RH chops off the retail traders, but only in the direction that favors Citadel (and Melvin).

Was RH just ensuring they comply with regulations? Probably. Does it look like RH is doing Citadel a solid at the expense of their users? Absolutely.