NO QUARTER FOR CORRUPTION (Focussing on The Fed./FRBS)

[abh3vt]

Telephonics, I have several shorting related questions for you. Do you know the rules surrounding convertible debentures and hedging? Can a hedge fund involved in a deal immediately short up to the amount of shares they plan to convert?

I'm thinking of a particular case involving CXTI.ob. This Chinese tech company filed an 8k on Oct 27 announcing a "toxic" $6MM convertible debenture:
http://www.sec.gov/Archives/edgar/data/1039726/000113705005000314/platinumcontract8k.htm

Within days, the stock fell sharply from the 1.60 range down to 0.80. It stayed down just long enough for the hedge funds involved in the deal to convert $1.6MM of the $6MM into 2.3MM shares of stock:
http://www.sec.gov/Archives/edgar/data/1039726/000113705005000359/platconver8k.htm

Here's my question. CXTI never showed up on the Reg SHO list during the past month, so clearly the hedge funds were able to short up to 2.3MM shares with no problem. Now what? Can they sell these newly received 2.3MM shares if they have not been registered? Or can they sell some of them as long as they use a Form 144?

Also, what happens to those short positions if and when the hedgers sell the underlying stock? Are they forced to close them out?

Thanks!