SEC on Naked Short SellingLatest short data shows 5 million shares shorted. Naked short selling is not illegal per sec. There are no rules for Over-the-counter stocks. Insiders can "short against the box" or short shares against options eligible for exercise in Canada.
Here is the SEC caution:
There also may be instances where a company insider or paid promoter provides false and misleading excuses for why a company’s stock price has recently decreased. For instance, these individuals may claim that the price decrease is a temporary condition resulting from the activities of “naked” short sellers. The insiders or promoters may hope to use this misinformation to move the price back up so they can dump their own stock at higher prices. Often, the price decrease is a result of the company’s poor financial situation rather than the reasons provided by the insiders or promoters.