Don't get me wrong, I wish it was easier for retail investors to short penny stocks. There are a number of them that warrant it.
It is the inside, big boys club where they seem to have all the a rules in there favor. This is the real problem,. Naked shorts allowed as long as they can say they are just trying to make a market. Watch CSTI and other well known shorting market makers. I have seen them "make markets providing liquidity" aka known as naked shorting pushing a stock way down in value, trading more shares than are even issued by the company. The stacking the offers, low offers, etc. to make it look like a massive sell off is underway, even if there isn't one. Again many pumps do have big real sell offs. But when they don't the market makers do it anyway. That is my problem with it.
You might want to get on the Buyins.net mailing list or watch the web site. They have often exposed naked shorting and had it lead to a short squeeze. Mind you it is mostly for larger stocks. But I have seen it on some penny stocks also.
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