The Financial Industry Regulatory Authority's chairman said on Tuesday that regulators plan to review allegations that Morgan Stanley shared negative news before Facebook's initial public offering with institutional investors.

"The allegations, if true, are a matter of regulatory concern" to FINRA and SEC, Ketchum told Reuters.

Ketchum made the remarks to Reuters in response to allegations that Morgan Stanley [MS 13.31 0.12 (+0.91%) ], the lead underwriter on the deal, unexpectedly delivered some negative news to major clients in the run-up to Facebook's [FB 31.00 -3.03 (-8.9%) ] $16 billion IPO: The bank's consumer Internet analyst, Scott Devitt, was reducing his revenue forecasts for the company.


Massachusetts Secretary of Commonwealth William Galvin has issued a subpoena to Morgan Stanley over the discussions with investors on Facebook.

It is unusual for analysts at lead underwriters to make such changes so close to the IPO, sources said. It is unclear whether Morgan Stanley only told its top clients about the revised view or spread the word more broadly.

"The Securities Division has put out a subpoena to Morgan Stanley in connection with the analyst's discussion with certain institutional investors about the revenue prospects for Facebook,'' a spokesman for Galvin's office said.

Morgan Stanley maintains that its handling of the Facebook IPO was in compliance with standard procedure.

(Reuters) - In its three days of trading, Facebook's stock has dropped 18 percent from its $38 issue price. For the thousands of investors that bought at the IPO, that's bad enough, but one analysis of its earnings prospects suggests it could get a lot worse - more like $10 a share.

Setting aside the hype and the cultural phenomenon that is the online networking site, Facebook Inc would be fairly priced at $9.59, according to the smattering of Wall Street estimates analyzed and modeled by Thomson Reuters StarMine.

Data from six brokerages modeled by StarMine forecast the company's estimated annualized earnings growth over the next 10 years at 10.8 percent. That's almost exactly the mean for the technology sector and far below the 24 percent growth rate implied by the current stock price.

Some analysts, however, see the stock returning to the $40 per share level it traded at last week.

"Investors are looking for much more growth than the analysts covering the company," said Greg Harrison, corporate earnings research analyst at Thomson Reuters.

Starmine's intrinsic value estimate incorporates analyst estimates for the next five years of growth and then models another five years of steadily slower growth trends based on industry averages.

It is possible that its data will change as more analyst estimates become available. Underwriters are restricted from issuing research on a company for 40 days, and Facebook has a number of underwriters, led by Morgan Stanley.

Investor confidence in the shares has been damaged after Reuters reported lead underwriter Morgan Stanley cut its revenue forecasts for Facebook in the days before the offering, in part because of comments from Facebook on mobile usage.

After pricing at $38, far more than the first estimate of $28 the company gave investors, shares have been sliding - at one point as much as 31 percent from the $45 peak hit shortly after it started trading Friday.

"Facebook right now is going for far more than what it's worth, it's like buying $1 for $1.98, it just doesn't make sense at this price," said Eddy Elfenbein, widely followed blogger and editor at Crossing Wall Street.

Starmine's analysis of Google Inc's value puts that stock at $680, assuming a growth rate of 10.1 percent for the next 10 years. That makes the Internet giant undervalued at $599 a share.

"Just from basic modeling the stock should be around $17 to $20 dollars, and that is with a lot of variables," Elfenbein said. "I would call that an ideal price. I would be interested in buying and I think that is a good deal for investors."

The $9.59 level is less than one-third of the trough of $30.94 hit Tuesday.

SAN FRANCISCO (MarketWatch) -- Facebook Inc. FB +2.55% Chief Executive Mark Zuckerberg has sold 30.2 million shares and director Peter Thiel has sold 16.8 million shares of the social-networking company, according to securities filings published late Tuesday. The sales confirm plans detailed in a prospectus before Friday's $16 billion IPO. Zuckerberg sold 30.2 million shares at a price of $37.58 for gross proceeds of $1.13 billion; Thiel sold 16.8 million shares for gross proceeds of $633 million. Facebook insiders had told prospective shareholders of their plans in an S-1 filing last week. Facebook FB +2.55% shares were down 0.8% after hours at $30.74.

SAN FRANCISCO (MarketWatch) – Facebook Inc. and the lead underwriters of its inital public offering were sued on Wednesday in a federal district court in New York. The class-action lawsuit accuses the company of "false and misleading representations and ommissions" made in the process of its IPO roadshow. The complaint specifically points to news reports that Facebook's lead underwriters -- Morgan Stanley, Goldman Sachs and J.P. Morgan -- cut back their revenue forecasts for Facebook during the roadshow, which was only shared with a limited number of clients. A representative for Facebook could not be reached for immediate comment.