Go directly to jail; do not pass GO. So far I believe all of this is legal. Short selling by itself is necessary and healthy to the market. It keeps the market more efficient, and often it is the shorts who call out bad behavior and accounting fraud. While these hedge funds may have abused their short positions, which could drive companies to bankruptcy, it is still legal. It is also not illegal for traders to buy up shares for a squeeze. So far, it appears that Robinhood and other small brokerages stopped individual investors from buying shares so that they could raise more capital for clearing corporations' collateral, which is legal. However, later on, if there is evidence that Robinhood just used this as an excuse and the real purpose was to protect Citadel and other hedge funds, then it is illegal. Impacts The short squeeze on hedge funds resulted in these funds selling their other stocks to get cash to cover the short, and that helped drive the market sharply lower.