Let's pretend we are all novices here and think about this very easy-to-understand scenario.
I am a hedge fund or other institutional-type investor able to short penny stocks at a much less expensive fee than small-time investors/traders. I learn about a scam and see the scam coming to fruition as national advertising commences, knowing full well the 10K is bogus. What a perfect time to short as PPS rises. Then I make one call to a newspaper reporter known to have connections in the securities industry and whisper in her ear. Then I whisper in the SEC ear, who are obliged to act upon these whispers.
Crooks are exposed and due to DTCC lacking either the wherewithal or the balls to reconcile the trades, and the SEC allows a security to remain on FTD for months, let's face it, have short interest is nothing short of counterfeiting. Hell, if I was a hedge fund, or anyone with ability to short penny stocks at a small fee, and if I had no conscience, I would jump on that deal everytime.
