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The incentive already exists in the form of long investors doing their due diligence.

How does that make any sense? If the stock was growing 15% year over year without any indication that there are any issue, why would any investor want to provide any information or do any research on why that isn't the case? If an investor knew that there was fraud going on they would probably keep it to themselves and simply invest in the company anyways, because the financial incentive is there.

In your hypothetical example, a stock is going up and up, and I suspect it might be fraudulent, and you believe I have no incentive to pull my money out before the house of cards collapses?

Getting my money out is all the incentive I need! I bet plenty of Theranos investors would've loved to do exactly that. And there was no shorting involved in that company.

The question they are asking is if it’s going up & up what will ever cause it to go down?

The standard answer is the government. Which is fine but reduces a moral position to an operational one.

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