Facebook is facing a lawsuit from angry shareholders and multiple probes from regulators over the disappointing handling of its initial public offering last week.

In a suit filed in the U.S. District Court in Manhattan late Tuesday, a group of Facebook shareholders are suing the Menlo Park, Calif.-based company, claiming insiders were selectively given secret information about the company's true financial projections from underwriters, while retail investors and other investment houses were left in the dark.

"The revised figures were only passed along to some investors who were therefore able to make profits by selling their IPO shares Friday while shares were on the rise," New York law firm Levi & Korsinsky alleges in the suit.

Morgan Stanley, the investment bank that shepherded the company through its highly publicized initial stock offering last week, is also facing a regulatory probe from the self-policing Financial Industry Regulatory Authority over whether or not the bank selectively withheld information about a negative analyst report ahead of the IPO.

FINRA head Rick Ketchum said the question is "a matter of regulatory concern" for his organization and the Securities and Exchange Commission.

Similarly, the top securities regulator for Massachusetts, William Galvin, said his office will subpoena the company to pursue its own investigation of whether Morgan Stanley divulged to only some clients that one of its analysts had cut his revenue estimates for the social media giant.

The bank said late Tuesday that it "followed the same procedures for the Facebook offering that it follows for all IPOs," referring to initial public offerings of stock. It said that its procedures complied with regulations.

The questions about the role played by Morgan Stanley, the lead underwriter for the deal, add to the confusion surrounding Facebook's IPO. In the most hotly anticipated stock debut in years, the offering raised $16 billion for the social networking company, valuing it at $104 billion.

"Who would have thought that Morgan Stanley's greatest coup could be their downfall," David Kaufman of Westcourt Capital Corp. in Toronto told CBC News. "One of the fascinating stories in all this is what effect this will have on other Nasdaq-listed tech companies, or other IPOs in the pipeline."

Shares in the Nasdaq itself have dropped more than $2, or 10 per cent, from where they were before Facebook's IPO on Friday, as negative fallout from the underwhelming debut — and a lengthy trading delay on Friday while the exchange struggled to process an order backlog — is dragging on shares.

Nasdaq CEO Robert Greifeld told shareholders of the exchange's parent company that "clearly we had mistakes within the Facebook listing."

After briefly trading above $42, the IPO plummeted through the trading day on Friday, closing at the IPO price of $38 after a furious defence of the level by lead underwriter Morgan Stanley. Trading Monday and Tuesday saw the shares fall below the $31 level before a slight rebound Wednesday had the stock trading just north of $32.

Some brokerages were still sorting out the aftermath of the trading delay on Tuesday.

"Unfortunately, our clients continue to feel the effects of this in some cases," said Stephen Austin, a spokesman for Fidelity Investments, one of the country's largest brokerages. Fidelity was still waiting for some Facebook stock orders that it placed on Friday to be executed. Fidelity's systems had performed normally, Austin said.

Reuters reported Tuesday that a Morgan Stanley analyst, Scott Devitt, cut his estimate for Facebook's revenue this year to $4.85 billion from more than $5 billion earlier. The news agency reported it was unclear whether Morgan Stanley had told only select clients about the reduced estimate.

Reuters reported that the analyst cut his figures for Facebook while the company's executives, including founder and CEO Mark Zuckerberg, were shopping the stock to potential investors in the weeks ahead of the IPO, a process known in investing as a road show.

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

That was a reference to a May 9 regulatory filing in which Facebook said a shift by many Facebook users toward mobile devices might limit its revenue growth. Social media companies have struggled to make as much money as they would like from mobile advertising. Advertising accounts for more than 80 per cent of Facebook's overall revenue.

Morgan Stanley also said that revised analyst views were taken into account in setting the stock offering price at $38 per share. Facebook, working with Morgan Stanley, first set a range of $28 to $35 for the offering price, then raised the range to $34 to $38 before setting it at $38 on the night before the IPO.

Reports suggest Facebook's chief financial officer, David Ebersman, along with Morgan Stanley decided to increase the size of the offering by 25 per cent early last week. Selling too many shares at too high a price has the appearance or trying to let insiders cash out at the public's expense. That perception is what has led to the heightened regulatory scrutiny.

"A little understanding of who sold their own shares should have been the signal that something wasn't right," Kaufman said.

When the stock started trading Friday, it jumped several dollars, but quickly fell back toward $38. It never crossed below that level on its first day, and outside analysts said that was probably because Morgan Stanley, eager to avoid the embarrassment of a first-day decline in the stock price, had rushed in with thousands of buy orders at $38.

A spokesman for Facebook Inc., which is based in Menlo Park, Calif., said late Tuesday that the company had no comment.

The SEC had already said on Friday that it was looking into problems surrounding the IPO. On Tuesday, the agency's chairman, Mary Schapiro, 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."