Think of it more as protecting themselves. If protecting customers was really the goal, brokers would offer discount services only to professional traders. Everyone else would be charged a much higher rate, provided individual investing advice, and steered clear of most OTC stocks.
I'm not saying TDA is making the right call in all cases. They're more aggressive than other brokers in restricting trading. Open short positions was definitely not a determining factor for their decision to restrict trading on PYPR.
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"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
-- Warren Buffett