The SEC has obtained from Melvin its general communications with investors and has sought information about what the firm disclosed about the risks of its investment strategy to clients, the people said. Melvin is in the process of winding down after Mr. Plotkin surprised investors in May by telling them he would return their money.

The investigation is in its early stages and may not lead to any formal claims of wrongdoing. It is being handled by the enforcement division’s asset-management unit in Washington, D.C., the people said. The SEC and other law-enforcement authorities have investigated the frenzied trading in early 2021 that sent shares of

GameStop Corp.

and others soaring. It couldn’t be learned whether the broader inquiries are related to the SEC’s probe of Melvin.

Melvin lost $6.8 billion in January 2021, or more than half its assets under management, as retail and other investors banded together to target the fund’s short positions. The loss was one of the swiftest and steepest declines for a hedge fund since the 2008 financial crisis: At the worst points, Melvin was hemorrhaging more than $1 billion a day. Melvin late that January got a total of $2.75 billion from

Ken Griffin’s

Citadel and

Steven A. Cohen’s

Point72 Asset Management in exchange for a share of its revenues, in a deal that let the firm reduce its leverage rather than sell out of its positions.

The meme-stock frenzy died down by the end of January, and Melvin raised new money from other investors. Mr. Plotkin and other executives told clients in virtual meetings that he planned to soldier on and that the firm had strengthened its risk-management practices, particularly as it related to the fund’s short positions, after surviving an unforeseeable market phenomenon, clients said.

Several other hedge funds sustained losses during that period and made adjustments thereafter, for example by pulling back on shorting individual stocks and shifting toward betting against indexes or baskets of stocks instead.

While Melvin made back some of the January 2021 losses last year, it suffered additional losses as growth stocks, a big driver of stock-picking hedge funds’ returns in recent years, sold off in a market rout in early 2022. The selloff, brought on in part by the Federal Reserve’s moves to reverse its easy-money policies, hit former market darlings like

Meta Platforms Inc.,

Netflix Inc.

and

PayPal Holdings Inc.

Faced with mounting losses, Mr. Plotkin in April told clients he planned to start charging incentive fees before making his clients whole. He quickly backtracked from that proposal, calling it “a mistake.” In May, he told clients of his decision to return their money, saying he had been unable to deliver the returns they should expect and recognized he needed “to step away from managing external capital.”

Continuing losses made it difficult for Melvin to come up with new terms palatable to clients that also would incentivize Mr. Plotkin’s team, said people familiar with the matter. The continued spotlight also wore on Mr. Plotkin. People familiar with Mr. Plotkin said the investigation didn’t play a role in his decision to return clients’ money.

Founded in 2014 by Mr. Plotkin, a former top portfolio manager for Mr. Cohen, Melvin was one of the top-performing hedge funds until 2021.

Its recent travails took Melvin’s track record from an average 30% a year after fees, from the fund’s start in 2014 through 2020, to 11.9% from its inception through April 2022.

By the end of May 2022, clients who were invested in Melvin at the start of 2021 had lost about 57% of their money, meaning Mr. Plotkin would have had to make more than 132% to make clients whole. Most of the clients who invested in Melvin after January 2021 made money, a person familiar with the matter said.

Professional investors remain wary of flare-ups in meme stocks, concern that is fueled by moves like a gain of about 85% over the course of two trading days earlier this month in shares of

Bed Bath & Beyond Inc.

Write to Juliet Chung at juliet.chung@wsj.com, Susan Pulliam at susan.pulliam@wsj.com and Dave Michaels at dave.michaels@wsj.com