They were banking on selling as much as they could all the way down to zero. When it went bankrupt they wouldn't have to turn over shares. Trading would be halted. And they keep the cash.
You can hedge with calls, but I think they were naked selling because the they sold more than the float.
The bigger you are the more the SEC will make up shit to help you. In cases of fat fingers, they will roll positions back. GS (goldman sachs) saved a bundle a few years ago with this kind of help.
Robinhood ain't that big, so it wouldn't be hard for the SEC to threaten them with action to take the platform down.