Seadrill Ltd (SDRL)

[1manband]

But if the price continues to collapses from the point he sold wouldn't that still leave him a tidy profit once he covers? How will the broker reconcile that?

This is an actual case of a naked short, since the seller did not borrow any shares before the sale.

The trade will not clear, as the Old Seadrill has a different CUSIP from the New Seadrill which is what was actually sold. The account will be frozen. The money from the sale will not be available.

The broker will not permit the seller to receive any profit from the trade, as it was not compliant with securities regulations. But if there is any loss, the seller WILL be legally obligated to pay it.