Massachusetts Secretary of Commonwealth William Galvin has reportedly issued Morgan Stanley with a subpoena as part of an investigation into Facebook's IPO, while two investors are taking legal action against Facebook, Nasdaq and Morgan Stanley following the botched market debut.
Galvin has issued the legal request for documentation or testimony following a move by underwriter Morgan Stanley to downgrade its revenue forecast for Facebook ahead of the float.
Morgan Stanley is facing allegations it did not properly disclose the revised projections to investors during a roadshow.
Investor Darryl Lazar has filed a proposed class-action lawsuit against Facebook, Mark Zuckerberg and Morgan Stanley, alleging Facebook's registration and prospectus were materially false.
A statement from plaintiff law firm Glancy Binkow & Goldberg read: "The offering materials provided to potential investors were negligently prepared and failed to disclose material information about Facebook's business, operations and prospects, in violation of federal securities laws.
"The complaint alleges that Facebook, certain of the company's executive officers and directors and the underwriters of the IPO failed to disclose that during the IPO roadshow, the lead underwriters, including Morgan Stanley & Co, J.P. Morgan Securities, and Goldman Sachs & Co cut their earnings forecasts, and that news of the estimate cut was passed on only to a handful of large investor clients, not to the public."
Underwriter Morgan Stanley came under fire after its consumer internet analyst, Scott Devitt, downgraded his revenue projections for Facebook shortly before the $16bn IPO.
The change in Morgan Stanley's estimates came on the heels of Facebook's filing of an amended prospectus with the SEC, in which the company expressed caution about revenue growth due to a rapid shift by users to mobile devices.
Two investors who were advised of the revised forecast said it may have contributed to the weak performance of Facebook shares, which have been steadily plunging since it listed on Friday.
In a statement, Morgan Stanley said it followed the same procedures for the Facebook offering that it adheres to for all IPOs.
"These procedures are in compliance with all applicable regulations. After Facebook released a revised S-1 filing on 9 May providing additional guidance with respect to business trends, a copy of the amendment was forwarded to all of MS's institutional and retail investors and the amendment was widely publicised in the press at the time.
"In response to the information about business trends, a significant number of research analysts in the syndicate who were participating in investor education reduced their earnings views to reflect their estimate of the impact of the new information. These revised views were taken into account in the pricing of the IPO."
Yesterday the SEC and regulatory body FINRA both said they would look into the matter.
SEC chairman Mary Schapiro said: "There are issues that we need to look at".
Richard Ketchum, chief executive of the Financial Industry Regulatory Authority (FINRA), added there were "matters of regulatory concern".
Separately, investor Philip Goldberg is seeking class action status for a lawsuit against Nasdaq Group claiming it was negligent in the way it handled the IPO, leading to losses for traders, Reuters reports.
An initial technical glitch caused trades of Facebook shares to be delayed, for which Nasdaq later apologised.
The $38 per share IPO price valued Facebook at $104bn. The shares have fallen more than 26% since listing on the tech-heavy index.
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