It's no secret, the SEC has admitted that MM's short as well. It does exist and there is very little done about it.
Exception for Options Market Makers from Short Selling Close-Out Provisions in Reg SHO Repealed. FROM THE SEC.
The Commission approved a final rule to eliminate the options market maker exception from the close-out requirement of Rule 203(b)(3) in Regulation SHO. This rule change also becomes effective at 12:01 a.m. ET on Thursday, Sept. 18, 2008.
As a result, options market makers will be treated in the same way as all other market participants, and required to abide by the hard T+3 closeout requirements that effectively ban naked short selling.
Robert J. Shapiro, former undersecretary of commerce for economic affairs, and a consultant to a law firm suing over naked shorting,has claimed that naked short selling has cost investors $100 billion and driven 1,000 companies into the ground.