That is still possible even without naked short selling. Let's say that you own some stock. I borrow it from you and sell it to person B. That is normal short selling. I am so sure that it will go down that I borrow that same share from person B and sell it again. Now there are two short shares sold for only one real share existing. Each time I borrowed a real share of stock instead of a counterfeit one created by the brokerage firms like in naked short selling.
I guess it could be possible to set up regulations so that a share can only be shorted once, but that would set up a situation where a share shorted once would be a slightly less valuable stock than one that still could be shorted, which should be accounted for somehow (maybe a mandatory dividend paid by the shorter to the new owner of the stock.
I don’t agree with you that current regulations aloow more than one share to be shorted against one share.
But it does happen the way you described but regulations do not support it. It is illegal. There has to be underlying stock to support a short sale period.