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At Melvin scale it most likely is illegal, if they didn’t have a reasonable chance at getting the shares they needed (which at ~140% of float, they don’t). htt

• dragontamer 6y ago
  > which at ~140% of float, they don’t Why not? Person A has 100 shares. Melvin borrows 40 shares from A, and sells it to Person B. Person A + Person B now have 140 shares combined (while Melvin has -40 shares). If PersonA + PersonB agree to loan shares to Melvin for another short sell, they've become able to drop to -140 shares, by borrowing 60 of Person A's remaining shares, and then 40 shares from B. Nothing illegal here, as long as Person A and Person B agree to the terms. ---------- And again: Melvin seemed to hold puts, not shorts. So this entire point is moot anyway. Puts are a bear-bet, but they're kind of unrelated to short-selling.