Catastrophe for Facebook, Wall Street, Investors: SEC and FINRA Plan Investigation of Facebook IPO

The Financial Industry Regulatory Authority’s chairman told Reuters today that regulators plan to review allegations that underwriter Morgan Stanley shared negative news before Facebook’s hotly anticipared initial public offering last week with institutional investors.

“The allegations, if true, are a matter of regulatory concern,” Richard Ketchum is quoted as saying.

This morning, Business Insider’s Henry Blodget penned a lenghty piece outlining the magnitude—and rarity—of this potential calamity. Noting that he’s never seen this happen in 20 years in the business, Henry understated that this is a “huge problem”—for the banks, for Facebook, and for the myriad retail investors who were suckered (or “Zuckered”) into purchasing IPO shares for $38 apiece.

FB shares were down 4% before the news, and have since sunk even further to 8%.