May 24, 2012 -- Facebook stock closed up for the second day in a row as Facebook's underwriters continued to face heat over whether they gave an unfair advantage to preferred clients. Many average investors lost thousands of dollars betting on Facebook's IPO.
A week after the company had the biggest tech IPO in U.S. history, Facebook stock closed up 3.2 percent to $33.03 on the NASDAQ Thursday.
Reports that large clients, such as mutual funds and wealthy investors, received a warning about Facebook's muted revenue prospects have attracted the attention of lawmakers and securities regulators.
Reuters reported this week that Morgan Stanley and other investment banking underwriters only warned favored clients that Facebook's revenue would be lower than expected, based on publicly available information about Facebook's mobile business.
Capital Research and Management, an investment firm based in Los Angeles, may be one of the preferred investors that received a warning from an underwriter about Facebook's lower-than-expected revenue days before the IPO, the Wall Street Journal reported.
"We, like other investment mangement firms, had access to publicly available information and we made an investment decision based on publicly available information," Chuck Freadhoff, a spokesman for Capital Research and Management, told ABC News.
Jim Krapfel, an IPO analyst with the investment firm Morningstar, said that activity may first sound "legal and common."
"Clearly, though, the rules need to be changed to put all investors on a more even playing field," Krapfel said.
Three investors filed a class action lawsuit in a Manhattan federal court on Wednesday against Facebook's board and its underwriters, saying its filings with the Securities and Exchange Commission were "false and misleading." The Senate banking committee and the Securities and Exchange Commission said they are looking into the issues related to Facebook's IPO.
Jacob Zamansky, a securities attorney in New York who is not involved with that suit, said that it appears Morgan Stanley may have violated securities rules.
He said the underwriters' alleged actions fly in the face of a $1.4 billion settlement in 2003 with 10 banks. The settlement came after an investigation by Eliot Spitzer, then New York state's attorney general. That agreement settled charges of corruption against analysts after the so-called dotcom bubble burst and provided that issuers would follow "fair disclosure" rules and provide the same information to all clients.
Morgan Stanley has said 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 a statement.
A spokesman for the New York Stock Exchange denied reports that Facebook was considering shifting from the NASDAQ after technical glitches delayed trading in Facebook stock last Friday by over 30 minutes.
"There have been no discussions with Facebook regarding switching their listing in light of the events of the last week, nor do we think a discussion along those lines would be appropriate at this time," NYSE spokesman Richard Adamonis told ABC News.