Insiders Warned on Facebook IPO, Regulators Launch Investigation

Facebook's IPO is looking more disastrous by the day. Regulators are now probing reports that underwriter Morgan Stanley and other banks cut their revenue forecasts for the company just days before the IPO—but only advised major clients of the change. Insiders believe the revised forecast, which smaller investors were not advised of, contributed to the weak performance of Facebook shares, which finished more than 18% below the IPO price yesterday, costing investors close to $40 billion, Reuters reports. Regulators in Massachusetts have subpoenaed chief underwriter Morgan Stanley, and the SEC is reviewing the allegations

The forecasts were cut after a tipoff from a Facebook exec, according to Business Insider, which notes that such "selective disclosure" is grossly unfair to investors at best and a violation of securities laws at worst. "There is no debating this is a misadventure of epic proportions," a Greencrest Capital analyst tells CBS. "This was supposed to be the chance to restore the public's faith in the public markets and in Wall Street," he says. "And instead, it's been a reminder of everything people suspected, feared, or hated about the public markets and Wall Street." (More Morgan Stanley stories.)