That doesn't say short squeezes are illegal, it says manipulating the market to cause a short squeeze is illegal - but that's not what's happening. People are buying stock to profit off of a short squeeze or to hurt the short sellers. Some people believe GameStop will go up and others think it's an opportunity to profit off of a naturally occurring short squeeze and others think it's a way to hurt the hedge funds. None of that is manipulation.

By contrast preventing a million people from buying a stock at a critical moment is clearly manipulation.

"Although some short squeezes may occur naturally in the market, a scheme to manipulate the price or availability of stock in order to cause a short squeeze is illegal."

Yeah you keep linking that too, it says market manipulation/schemes are illegal.

It's absolutely unclear if that's the case here, and in fact based on the few extreme times short selling has been illegal I'd say this definitely does not get there.

The key word there is "scheme". If we both agree out loud that the sun will rise tomorrow we're not scheming to make it so.

If some dude in an expensive suit gets on TV and says a stock will fall then buys a couple billion in shorts and you do the same because you like his style the two of you aren't scheming to make it happen.

Likewise, if some guy in his basement posts on an internet forum about how he's sure a stock will go up and you feel compelled to buy some too you're not scheming.

Finally, if millions of people are collectively motivated by the idea that they just really dislike hedge funds, want to make some money, and maybe want to watch the world burn, so they buy into an increasingly ridiculous idea they're _still_ not scheming because they all made the independent decision to do so after doing what amounts to each individual's 'due diligence' and are not entering or exiting the position in concert.

That entire argument depends on being able to determine individual trader's motives for their trades. Also, by that argument Robinhood is acting illegally by manipulating the availability of the stock.

I think the notion of a scheme here is what's debatable.

The risk was there when these funds shorted 140% of the stock. Retail folks noticed the potential for a naturally occurring squeeze and shared the info with world.