Consequence seems reasonable.
I suspect the issue is that once a few are successful, word spreads quickly. They have to respond to maintain the integrity of the program, and put a stop to anything that penalizes students who are doing what they are supposed to do. I don’t know enough to say whether it was the proper response.
They probably did not limit public schools because most of the top public schools are constrained on merit money, and Penn does very well against all publics on cross admits, so they probably do no have an issue with those.