If the share price rises enough I believe they have to cover. The open short positions (naked or not) are on someone's books. If the PPS goes to $2, for example, any short positions would have a serious negative margin effect, resulting in a call or automatic buy-in if they vacate those accounts. Broker dealers will not allow themselves to be left holding the bag for the loss...unless, of course, they are short in their own accounts.
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