The following is my simplistic impression of shorting from what I have read. It may be all true, or all BS, though I have tried to sift through all the garbage out there and pick out only what seems to be true and supported by evidence. Most market makers either don't allow shorting of penny stocks by the average investor, or really discourage it. For example, they might require you to maintain $2.50 "margin" in your account for every share you short- meaning that shorting 100,000 shares would require a $2.5M balance- hardly worth it, especially since shorting 100k shares of a $.02 stock only gets you a max of $2000 even if the company goes belly up and the shares go to zero.

But someone with access to or a working relationship with a MM might very well short if there is no unrealistic margin requirement. A lender who can convert a debt and get twice as many shares at .015 as at .03 might very well be tempted to short, especially if it takes many fewer shares to drive the price down than the extra they will get on conversion at the lower price. The short shares are more than covered by the extra shares gained at the lower conversion, the rest are freebies. Most loans that can be converted to shares prohibit shorting, though, for obvious reasons. But that doesn't mean that unscrupulous lenders won't do it. The other consideration here is the nature of the short. They can be official shorts, as reported on various sites (less than 1M for SFMI at present), which at <1M are really of no concern for SFMI.

But there is another approach. MMs have I think three days after selling fictitious shares to borrow those shares to make it a valid short. Failure to do so results in a "naked" short, which is illegal. But if an MM buys fictitious shares from another account, there is no ongoing "short" in the first account. They then have three more days to cover the shares in that second account. After those three days, they then buy shares from a third account. Wash, rinse, repeat. The original fictitious shares are never covered, and never reported as ongoing shorts. This may not be exactly how it happens, but there are ways for MMs to short shares without them being reported. As far as I can figure, such manipulations require the collaboration of the lender and MM.