Acting alone it’s not inherently illegal. Real question is whether pooling your strength (ie assets) with others to force a squeeze is illegal collusion and market manipulation.

In particular, it's hard to see a short squeeze as market manipulation, which is why nobody has been penalized for it.

What is a hedge fund except more explicit coordination of many people's money on a much greater scale? The classic example of Porsche's squeeze on VW stock was Porsche's management coordinating many people's pooled assets.

It has happened in the past: https://www.marketwatch.com/story/squeeze-on-goldman-put-fal... and https://www.sec.gov/news/press-release/2012-2012-122htm

It looks like Falcone may have been ok both sides of the squeeze, or at least treating its customers differently in order to execute it?