Watch my http://howtomakemillions.com guide, I explain it in depth there

^^^^ What he said!

The company is going broke so they sell shares for a cheap price to institutions (really bad news).

when you short a stock and the brokers buyers back your shares to cover so they can get their borrowed shares back .

I recently had a conversation with E-Trade about this, asking them what the risk of that happening was as long as I maintained a proper margin levels in my account. They explained that

They actually have to borrow the shares from other people (clients) to lend them to us. If for some reason that client wants their shares back, they have to take them back from us no matter what. He said that particular reason is quite rare though. usually just too much position size/risk