E.g. A lends a share to B, B sells to C, C lends to D. Now say another shorter, X, needs to cover their short and thus buys a share from C, now for this trade to settle C has to recall their share from D and then give it to X, who would then use it to cover their short. If D now fails to give back the share to C, then the trade between C-D is FTD which would then cause X trade with its borrower to be FTD since X needs C's share to settle it.

So they could have locates but still fail to settle. Though, I'm not unequivocally excluding that some naked shorts may have happened. I just find it more plausible than hedge funds and brokerages allowing huge amounts of naked shorts, which are already illegal.