> the company pays 1000 dividends, and investors receive 1001 dividends.
You missed out the last part of that, which is "and investors pay 1 dividend". Investors as a class receive 1000 dividends on net. It all just nets out.
> If the company goes bust, all 1001 shares have lost their value.
And the person who sold a borrowed share will have gained money. The net change across the economy is the value of 1000 shares, not 1001 shares.
> If there's a shareholder lawsuit with a payout, there will be 1001 claims
This usually doesn't happen, but when it does, it's a paperwork error, and an artifact of the fairly archaic way share ownership is recorded in the US. It's not inherent to the system, and it doesn't tell you anything about how short selling works in principle.
Re:Short Selling Is Tough Business
by gamblor956 on Wednesday September 19, 2018 @10:30AM
(#18024413)
A shareholder who lends their share to a short seller is not entitled to a claim for dividends from the company. They must get the dividends from the short seller.
In your case, we've jointly made a wager. I wouldn't be an investor in Apple, like I would be if I held shares, and would still be, if my shares were lent out.