I get the jist of what you are saying. Except you can't sell short any share under 5.00.
It's possible they jimmied the restriction off the stock, or found someone to "help" them. That i can see and understand. Especially if the company says "Give em back please". They will have to do as you say.
Investo, that would make one hell of a press release, the statement from MLXO stating the 175k was paid back and that the company issued demand for the return of shares, etc