Who downgraded Facebook's prospects? Maybe Facebook did

Underwriters of the social network's IPO were instructed to tell major clients they were reducing their revenue forecast for the company, a source tells Business Insider.

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Facebook itself may be responsible for investors' tepid response to the social network's stock, which has been tanking since it went public Friday.

Initially, it looks like Morgan Stanley, the lead underwriter on the massive offering, was to blame for allegedly telling major clients it had reduced its revenue forecast for the company, scaring off many big investors in the days leading up to the IPO. But no one knew why Morgan Stanley -- as well as JPMorgan Chase and Goldman Sachs, which also served as major underwriters for the deal -- would revise their estimates so close to the largest tech offering in history.

Now comes word that the underwriters cut their estimates because a Facebook executive instructed them to. A source tells Henry Blodget at Business Insider that the estimate reduction was then "verbally conveyed to institutional investors... but not to smaller investors."

Business Insider did not identify the executive. A Facebook representative declined to comment on the report.

Not long after Facebook's stock began trading Friday at $42.05, shares tumbled to their $38 offering price. Shares plummeted 11 percent on Monday and nearly 9 percent today.

As Blodget points out, this "selective disclosure" posed a significant disadvantage to small investors who bought the stock with faith in the information the company the company was legally required to publicly disclose. Blodget -- a former equity research analyst -- also suggests that such secrecy may violate securities laws.

The matter has already attracted the attention of securities regulators, who said they plan to review the allegations.

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

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