Government claimed all alcohol was poison back then, like with drugs today.
Denatured alcohol is literal poison, though.
No different than people selling bunk drugs. If people will buy it, they'll sell it. Greed is a great motivator. To be fair, a lot of people didn't have the education to know the harmful effects of denatured alcohol. They figured it was just a harsher buzz, and would mix it with distilled spirits as a filler. Or sometimes they'd just sell it outright, or mix it with flavorings in bathtubs - hence the name bathtub gin. It all depended on the person, some knew and didn't care.
It doesn't kill you outright, you have to be exposed to it often. It still gets you drunk. All alcohol is a poison, BTW.
Denatured alcohol is actually ethanol (drinkable) with additives that make it undrinkable. Thats so you can use it in industrial applications without being taxed, because without the additives people would drink the pure ethanol for cheap.