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TheStreet Open House

The Five Dumbest Things on Wall Street This Week: May 25

2. Morgan Stanley's Facebook Fiasco

Don't feel alone Nasdaq employees. You aren't the only ones losing face over the failed Facebook IPO. You have plenty of friends over at Morgan Stanley (MS - Get Report) joining you.

The Financial Industry Regulatory Authority's chairman said Tuesday that he plans to review charges made in a Reuters report that lead underwriter Morgan Stanley shared negative news about Facebook with its big-hitting institutional clients and not the general public prior to the company's more than $16 billion offering. According to the report, Morgan Stanley's consumer Internet analyst Scott Devitt took the highly unusual step of reducing his revenue forecasts for the company during the company's closed-door road show.

"The allegations, if true, are a matter of regulatory concern," FINRA chief Rick Ketchum told Reuters.

Not to be outdone, Massachusetts Secretary of Commonwealth William Galvin issued a subpoena to Morgan Stanley in connection with its analyst's discussions with investors about Facebook and Securities and Exchange Commission Chairman Mary Schapiro said she too will be on the case.

Oh man. We thought Morgan Stanley was only going to take heat for spiking the number of shares by 25% at the last minute to a humongous 421 million. Now they have to explain to a smattering of hyped-up pols why they simultaneously jacked up the price to $38 when their very own analyst was lowering his numbers.

Heck, now that the law is involved, maybe shoving too many overpriced shares down the gullible gullets of their Smith Barney brokerage clients is the least of their worries.

For the record, Morgan Stanley was not the only one secretly slashing earnings estimates ahead of the company's May 18 offering. Fellow underwriters JP Morgan Chase (JPM - Get Report) and Goldman Sachs (GS) also cut their outlooks after Facebook filed an amended prospectus on May 9 saying revenue growth was a risk as more users shifted to mobile devices.

Yep, you heard us correctly. We said Goldman Sachs.

Just when you thought the Vampire Squid was out. They pull it back in.

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