Facebook and its IPO underwriters are being sued and face pointed questions from lawmakers about whether they misled some investors before the largest initial public offering by a tech company in U.S. history.
Facebook investors, represented by the law firm of Robbins Geller Rudman and Dowd, have filed a class action suit against the company and its underwriters, saying the registration statement and prospectus filed with the Securities and Exchange Commission ahead of the IPO were "false and misleading."
The suit alleges that Facebook failed to disclose that the company told the lead underwriters to reduce their 2012 performance estimates because more users are using its mobile apps, which don't generate advertising revenue.
"This is not a fraud case. This is a case of strict liability," said David Rosenfeld, a partner with the law firm that filed the suit. "If there's a materially false statement or an omission in the filings, then the signatories, the board and the underwriters, are on the hook for investors that suffered as a result."
Morgan Stanley is looking into reimbursing clients over Facebook trading issues, Bloomberg reports. The Associated Press reported Morgan Stanley and other underwriters made a profit of about $100 million stablizing Facebook stock since its IPO.
The suit filed on Wednesday has three named plaintiffs who purchased Facebook common stock from the IPO and were "damaged thereby."
The lawsuit was filed today in a federal court in New York on behalf of Facebook stock purchasers against Facebook's board, including CEO Mark Zuckerberg and CFO David Ebersman, Morgan Stanley and the other underwriters.
A spokeswoman for Facebook provided a statement in response to the lawsuit filed in New York, which read: 'We believe the lawsuit is without merit and will defend ourselves vigorously."
Facebook stock moved higher on Wednesday after two days of declines. Shares of the tech company closed up 3.2 percent on Wednesday to $32 a share. Facebook offered the stock for $38 before Friday's IPO.
But while the company's stock had a slight jump, regulators had some pointed questions about Facebook's muted IPO on Friday.
On Tuesday, Reuters reported that Morgan Stanley and Goldman Sachs, two of the investment bank underwriters supporting the IPO, told clients earlier this month that they were reducing their earnings forecasts for Facebook.
The Senate Banking Committee is conducting staff briefings with Facebook, regulators and other stakeholders to learn more about issues raised in the news regarding Facebook's IPO, a committee aide told ABC News on Wednesday.
"I think there should be some kind of investigation to figure out why this information was provided to select investors and not disclosed to the regular, retail investor and why this information never made its way into the prospectus and registration statement like it should have under the law," Rosenfeld said.
Meanwhile, Massachusetts Secretary of State William Galvin has subpoenaed the tech company, investigating whether Morgan Stanley, the main IPO underwriter, told preferred investors that an analyst cut his revenue estimate based on the company's S-1 filing before the IPO.
The spokeswoman for Facebook declined to comment about the subpoena.
"If it turns out you have a pattern of conduct where preferred investors are getting special treatment that's devastating to rebuilding confidence in the market," Galvin told ABC News.
His office issued a subpoena to Morgan Stanley that seeks information about discussions the bank had with certain clients about Facebook's IPO.
"It is so important that we not allow this situation to go uninvestigated," Galvin said. "Given the breadth and size of the issue and the losses that are out there, it's important that we move rapidly."
Facebook stock lost nearly 20 percent of its value in its first three days of trading on the NASDAQ.
"So many investors have lost so rapidly so much," said Galvin. "We intend to move quickly. We need to get answers for average American investors."
A spokesman for Morgan Stanley provided a statement saying the bank "followed the same procedures for the Facebook offering that it follows for all IPOs."
"After Facebook released a revised S-1 filing on May 9th providing additional guidance with respect to business trends, a copy of the amendment was forwarded to all of MS's institutional and retail investors and the amendment was widely publicized in the press at the time," Morgan Stanley said.
In response to the information about business trends, a significant number of research analysts in the syndicate who were participating in investor education reduced their earnings views to reflect their estimate of the impact of the new information. These revised views were taken into account in the pricing of the IPO."
A spokeswoman for JP Morgan Chase, one of the underwriters, declined to comment about the class action lawsuit.
ABC News' Emily Chang, Lauren Pearle and Jason Volack contributed to this report.