I think the point is that retail investors were selling the puts, they predictably sold every day (or more likely, they predictably bought calls which is almost equivalent), and there were no other sophisticated market makers in the market.
That changes the description of part 2 to "subsequently experience retail investors placing large options trades with them" which is much more defensible market making behaviour - their early buying was in anticipation of later demand and really did involve taking a risk.
To add to this, that behaviour would typically be OK in the US, with a good compliance department to keep you away from the worst of the grey areas.
If the SEC did investigate you for this, an important part of the case would turn on the extent to which your actions were "bona fide market making". And the regulator would also be more introspective about the market structure that allowed this to happen - why is there only one market maker? How did we allow a derivatives market much more liquid than the underlying?
Huh? I don't think the SEC would (just) apologize for letting you get away with manipulation of a significant portion of the US index funds just because they should have noticed you sooner.
That changes the description of part 2 to "subsequently experience retail investors placing large options trades with them" which is much more defensible market making behaviour - their early buying was in anticipation of later demand and really did involve taking a risk.
The truth is probably somewhere in between.