It's perfectly legal if it's not specifically regulated as a financial market. Tons of firms do things quite like this - over-the-counter derivatives are rife with various market manipulations.
Pointing at a bigger gang of crooks and saying, "see, they're doing it too" doesn't make anybody involved less of a crook...
To me, the whole situation is an incredible demonstration of why "free markets solve everything correctly" is only (even potentially) true as N_participants -> infinity - and even more so a direct lesson in how thoroughly a "market" can fail when it's too small...
Why does this make them crooks? This whole thing is just a very convoluted form of gambling -- it's a game. If you bluff when playing poker, does that make you a crook?
In the securities market is it illegal per the securities exchange act of 1934. It is called a bear raid and is normally done by short sellers who have heavily shorted a stock and then collude to drive it lower. It is not as common as the pump and dump and it is true that market manipulation happens all the time just people dont talk about it because it is illegal http://www.investopedia.com/terms/b/bearraid.asp
To me, the whole situation is an incredible demonstration of why "free markets solve everything correctly" is only (even potentially) true as N_participants -> infinity - and even more so a direct lesson in how thoroughly a "market" can fail when it's too small...