This appears to be an example of a failed margin call. The broker should have closed out the customer's position sooner, to maintain margin requirements. It's interesting to think about the reasons that didn't happen in this case.

But to be clear, the broker is very exposed in this situation. It reads like the customer is planning to cover the loss, but if a loss is big enough there's a strong incentive to declare bankruptcy and leave the broker with bad debt. Needless to say the broker doesn't want to be in the position of worrying about whether they will be on the hook for customers' losses. Which is why margin requirements exist.