If the company actually goes bankrupt and their stock is delisted from exchanges, covering your position becomes much harder since liquidity is greatly reduced.
I think the ideal scenario for a short seller is if the stock loses 99%, stays listed, they cover, then it gets delisted.
You have that wrong; bankruptcy is the ideal scenario for somebody with a short position. The brokerage writes it off. The shares are worthless, so why go after somebody for owing you $0?
No-one's going to go after you. The problem is that you have to keep paying the fee to borrow shares, and you can never repay that loan because there are no shares available anywhere.
> He shorted some stocks that he thought were frauds, and the SEC agreed that they were frauds and halted them, and then ... things got worse for him. The shares were worthless, but they didn't trade at zero or $0.01 or whatever: They didn't trade at all, so he couldn't buy them back to deliver to his stock lenders.
Usually short sellers do manage to cover at some point before the stock completely stops trading though.
I think the ideal scenario for a short seller is if the stock loses 99%, stays listed, they cover, then it gets delisted.
I might have that wrong though.