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Regulators may review bank's Facebook allegations, report says

Reuters says that regulators plan to look into reports that Morgan Stanley cut its forecast for Facebook just before its IPO.

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Paul Sloan Former Editor
Paul Sloan is editor in chief of CNET News. Before joining CNET, he had been a San Francisco-based correspondent for Fortune magazine, an editor at large for Business 2.0 magazine, and a senior producer for CNN. When his fingers aren't on a keyboard, they're usually on a guitar. Email him here.
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The chairman of the Financial Industry Regulatory Authority told Reuters today that regulators plan to review the allegations that Facebook's own underwriter shared negative news with big investors in the run-up to the Facebook IPO last week. The SEC is also reportedly going to investigate.

News of a possible probe follows a Reuters report last night that said Morgan Stanley and Goldman Sachs each told major clients that it was reducing its revenue forecast for Facebook.

"The allegations, if true, are a matter of regulatory concern" to the Financial Industry Regulatory Authority and to the SEC, FINRA Chairman Rick Ketchum told Reuters.

SEC Chairman Mary Schapiro, speaking to reporters as she exited a Senate Banking Committee Hearing, said: "I think there is a lot of reason to have confidence in our markets and in the integrity of how they operate, but there are issues that we need to look at specifically with respect to Facebook."

Later in the day, the Massachusetts Secretary of Commonwealth issued a subpoena to Morgan Stanley over an analyst's discussion with investors about Facebook.

This comes as Facebook's stock continued to slide on its third day as a public company. The stock is now off roughly 18 percent from its IPO price of $38 a share. The whole IPO, in many ways a blockbuster success for the company since it raised a record-setting $16 billion, has been marred by problems.

Updated at 2:59 p.m. PT: Added information about the subpoena issued to Morgan Stanley.