"...rumors that they are a major conduit for much naked shorting in Canada..."

Gwr1 said earlier that Canaccord is indeed a market maker for ECU shares. So they might be allowed to naked-short ECU legally.

I've read that in the US a market maker is allowed to naked-short their shares, so this might be legal in Canada too.

The reason for permitting such shorting, is to maintain liquidity if the supply of shares dries up. I think the market maker is obligated to provide a minimum guaranteed fill (one board lot?) at the posted ask price, even if he has to short.