I'm sure the hedge-funds have thought of hanging the MMs out to dry, claiming they did not short or the MMs and their broker/dealers never made the affirmative determinations as to the availability of the security being sold short.
But here is the problem, if you counterfeit shares they eventually find their way into our brokerages account. Now when a company offers a dividend, the brokerage has to credit their account with the dividend. In order to do that the certs for all the shares held aggregate in brokerage accounts must be accounted for by the DTC...
Now if we have fake shares the DTC will not have the proper amount of certs for the dividend shares, and will only be able to provide the number of dividend shares they hold in "street name". That means our brokerage accounts must make up the difference between the number of dividend share certs held in the DTC and what must be distributed due to the large number of fake shares out.
In short the brokerages are responsible for the validity of the shares in your account and if the DTC doesnt have them the brokerages must pay. Obviously the brokerages aren't going to pay, and they'll go after the MMs who bought the stock for them, and they'll go after the MMs who sold the stock to them, who will go after the broker/dealers who sent the order through the system, who will go after their hedge-fund clients who sold all the naked short shares.
