If the reservation gets checked in, the points won't be returned automatically. It's possible that a guest might digitally check in then try to cancel, which can be processed manually by the property but good luck finding a hotel that a) knows how to do that and b) is willing to do that, so they may just check it out or even leave it in for all the nights.

The other possibility is the hotel checked it in fraudulently, so that the no show penalty would be the points instead of a charge to the card. A hotel I previously worked at (and before I started there, I hasten to add) was billed $17,000 after Hilton audited their points redemptions and found a history of checking in points no shows.