Naked shorting is practically legal, and basically unenforced. The seller only has to claim that there was "good faith reason to believe" that shares could be reasonably acquired within the settlement period (3 days). See Goldman Sach's infamous "Easy to Borrow List"[0].
Coordinated naked shorting attacks are real and legal. Flood the market with false shares and tiny lots of low-asks. Rapidly drop the price down to capture the easy stop-losses that retail investors might set. It is fool-proof because you know those shares can be obtained at a certain price (hedge-funds and market-makers can see the stop-losses). As soon as you acquire the stop-loss shares, pull off the selling pressure and use the shares just obtained to fulfill the short-contract. There is no borrowing.
I've had my stop losses trigger at the daily low for a share multiple times. It basically touched my stop loss then bounced back up. I think using conditional orders, which some brokers support makes this less of an issue.
