In this case, it would be illegal market manipulation on behalf of both the hedge fund and RH. There are plenty of laws that govern people's behavior depending

In this case, it would be illegal market manipulation on behalf of both the hedge fund and RH. There are plenty of laws that govern people's behavior depending on intent; for instance, shorting a stock is not illegal, but organizing a short in order to force other companies to sell (the opposite of a short squeeze) is illegal. The SEC can use your own trades as evidence against you; if you build a massive short position that is otherwise inconsistent with your risk management philosophy, it's evidence that this trade was manipulative.