Short-selling violations generated the Financial Industry Regulatory Authority (Finra) $16.8 million in fines from 38 cases involving alleged short selling violations in 2011, a 380 percent increase over the $3.5 million collected for 54 short selling fines in 2010, according to the annual Sutherland Asbill & Brennan LLP Finra Sanctions Survey released Wednesday.

The 2011 total was largely due to a single case that resulted in a $12 million fine from a firm's violations of Regulation SHO and corresponding supervisory deficiencies. Finra's regulation SHO requires a seller to reasonably believe a security can be acquired and delivered before it may be sold short. It also requires sellers to mark the shares as either long or short.

Brad Bennett, Finra's chief of enforcement, said the firm's alleged behavior included making millions of short sales without a reasonable belief that the securities could be acquired, and incorrectly marking millions of short sales."It created a potential harm for the integrity of the market," he said. 

Bennett said financial firms' trading and supervisory systems must be designed to "prevent potentially abusive naked short selling."

-Jim McConville