A naked short on their own account would be illegal. A time-bound naked short to fulfill their role as market maker would be acceptable.

But even then, all trades are either eventually settled at some time t, or fail to settle, e.g. if the seller is not good for the shares. Any of these 2 events happening is reported outside of a single broker-dealer, i.e. public info. And to settle a trade, you will need the actual shares, that you've either bought or borrowed.

All this info, settlements, failures, stock buys & loans is visible to other parties in the market.

If your point is that the Citadel is breaking the law, and not reporting what they should, when they should, then that's a problem. But there would be so many other parties discovering it way before their annual financials are published.

Well we all know financial institutions never do anything illegal.

https://www.sec.gov/newsroom/press-releases/2023-192 https://www.sec.gov/newsroom/press-releases/2017-11

> But there would be so many other parties discovering it way before their annual financials are published.

Looking at Bernie Madoff I'm not sure this is really the case...

Bernie didn't trade. That's why no one has anything to report.

they kick the can down the road every day, until the market price returns to what they desire and only then they send order to a lit market.

also heavy usage of synthetic shares and derivatives to hide naked shorts

Sure, but the problem isn’t that Citadel is expecting that the price will drop. The claim was that Citadel can take a short position without other parties in the market knowing, and finding out only from their annual financials.

That’s not true, because, amongst other reasons, everything you’ve listed (synthetic shares/derivatives/kicking the can down the road) can be seen by others in the market.

(Naked) Short all you want, there’s nothing wrong morally with betting in that direction. But it will be picked up.