Facebook stock: Once hot IPO now a tale of lawsuits, glitches, and overreach (+video)

"Facebook flop."

"Facebook fiasco."

The stock offering that was supposed to bring exultation on Wall Street and in Silicon Valley is instead being viewed as a debacle for the firm and its investment backers.

Investors are suing financial firms tied to Facebook's initial public offering (IPO). Regulators are investigating potential improprieties. The head of the Nasdaq market has apologized for irregularities in transactions as the stock opened. And on Day 4 of its life as a publicly traded company, the social media trailblazer is seeing its shares trade far below their initial offering price.

The problems should be kept in perspective. IPOs sometimes trade down rather than up. Rocky start or not, Facebook is still a fast-growing social media giant valued today at more than $80 billion. Company founders and early investors have made big money as expected.

But the launch troubles represent a major letdown for the firm and the financial industry, given that this was perhaps the most closely watched American IPO since another Internet company, Google, went public in 2004.

Facebook is catching questions about whether it priced its share too high at the offering, and whether insiders essentially became greedy by boosting the amount of stock offered, just days before launch.

The IPO is already a target for legal action.

William Galvin, the Massachusetts secretary of the Commonwealth, has subpoenaed Morgan Stanley regarding its role as lead underwriter of the stock offering. Mr. Galvin said his office is investigating whether Morgan Stanley divulged to only some clients that one of its analysts had cut his revenue estimates for Facebook before the stock hit the market on Friday.

Meanwhile, the Wall Street Journal reported Wednesday that three investors have filed a lawsuit regarding that same disclosure issue, and that other lawsuits related to the Facebook IPO are in motion.

The Reuters news service reported Tuesday that Morgan Stanley analyst Scott Devitt cut his estimate for Facebook's revenue this year to $4.85 billion, down from more than $5 billion.

Morgan Stanley, in a statement, did not specifically address which clients might have been told about the reduced estimate. But the firm said that "a significant number" of analysts who track Facebook, including those from other firms underwriting the stock issue, had reduced revenue estimates to reflect publicly available information about the company.

1 | 2

Next