Thats correct, they do. Money talks. The way they look at it if they can't cover the naked shorts, all they have to do is buy some from the companies 8 million offering and poof the phantom shares do exist.
Now if I were the CEO and not in bed with these hedge funds, i would cancel the 8 million offering and secure some non diluting financing. Of course they will say they can't but they can if they tried.
Put a pr like that out and watch the stock price hit 10 dollars. That would be a true short squeeze.