On his biography for Jesse Livermore - Reminiscences of a Stock Operator; Edwin Lefevre describes how the bucket shops used to work. There is a lot of information about them in first few chapters since those where the places where Livermore started his trading career.
A bucket shop was an establishment where you could place "trades". However this trades wouldn't go to the exchange, instead you would be "trading" (or rather, betting) against the house. So the establishment would take the other side of your trades and have an interest for you to lose your money.
It was not uncommon for these shops to manipulate the price of a stock (or the price that they reported to customers... ) to trigger margin calls on the accounts, or for them to perform other dirty tricks.
After the 29 crash, these type of shops were banned. The securities and exchange act has several provisions that prevent a broker from giving a price that didn't come from the market to a client. These provisions were put in place, in part, to get rid of bucket shops.