Investors in Wirecard remained spooked until BaFin intervened on February 18th.
The regulator cited Wirecard's "importance for the economy" and the "serious threat to market confidence" following the collapse in its share price.
Wirecard processes payments for 250,000 merchants, including Aldi and Lidl, two of Germany's biggest retailers, and numerous airlines.
The value of Wirecard rose by 16% after the regulator took action.
The ban may have been a risky move. The regulator is meant to act in the public interest.
This is the first time BaFin has used the measure to protect a single company.
(In 2008, with the financial crisis in full swing, they restricted short-selling of 11 bank stocks.)
Crispin Odey, a hedge-fund manager with short positions in Wirecard, has claimed that BaFin has opened the door to potential lawsuits.
In his view, according to reports by Bloomberg, the regulator should have ensured that Wirecard's employees did not engage in any wrongdoing before it took action.
Action might be justified if markets have been manipulated. Prosecutors in Munich say they are looking into possible violations of securities regulations.
But the Financial Times has rejected allegations of unethical reporting or market manipulation as "baseless and false".
Despite their unpopularity, short-sellers perform useful functions in markets.
They help prevent bubbles from forming and are adept at rooting out malfeasance.
Studies find that in the months before financial fraud at a company is revealed, short-selling of its stock tends to spike.
Jim Chanos, a well-known short-seller, famously predicted the demise of Enron, an energy-trading firm that went bust in 2001.
BaFin claims Wirecard had been the target of repeated "short attacks."
But shortselling a company that is suspected of false accounting does not undermine markets— rather, it is a sign they are working.
Making Mr Chanos give up his short position would not have saved Enron from bankruptcy, after all. He was the messenger, not the problem.