The explanation of how to short stock without borrowing it in the link in the press release linked to is the best I have ever read.
"J. Wolfson explained how a prime brokerage firm was paying him an implied borrow rate of 20% for the long stock it “purchased” from J. Wolfson’s reverse conversion while charging the hedge fund 30% to borrow the stock. To cut out the prime brokerage firm, and make his reverse conversions even more profitable, J. Wolfson proposed that he and the hedge fund could split the 10% the hedge fund could save by doing its conversions with J. Wolfson instead of borrowing the stock from the prime broker.
41. Typically, in a reverse conversion, the cost to borrow stock is considered a carrying cost to the reverser – the party providing the conversion. However, the Respondents did not have to factor in the cost to borrow stock when they quoted conversions because they avoided such costs by not complying with Reg. SHO. As a result, the Respondents enjoyed a competitive advantage over others in the market who were complying with Reg. SHO. " http://www.sec.gov/litigation/admin/2012/34-66283.pdf
pp 12, 13.
But read the whole thing.