That's a great story, but how is it that the company was unaware of a huge naked short position? If your contention is that the buys were never reported then it's not naked shorting, it's fraud, as no shares were ever transferred. And of course unreported transactions would have no effect on the price. If the transactions were reported to the company then it would have many more shares outstanding than issued.
If the naked shorters and those who drove the price down were buying at the historic lows, shouldn't the price be increasing? Are they waiting for it to go lower and if so, doesn't that REALLY scare you? Where are the buyers from those (such as yourself) who see the stock as artificially depressed? Clearly everyone isn't out of money as Rilo says he has several hundred thousand dollars to invest in the stock, but not until it falls a little further.
Of course all of this ignores the fact that the stock is valued at 6-8 times sales while the company has a large working capital deficit, negative tangible book value, is losing $1 million+ in each of the last quarters, and has a credit line with a high interest rate limited to 80% of A/R. IMHO, even if your theory on the shorts and hedges were true, all the arrests in the world won't get the price up - it will take good financial results.
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