Reuters reported Tuesday that Massachusetts had issued a subpoena to the investment bank leading the initial public offering of shares in social networking website Facebook.
The Massachusetts Secretary of Commonwealth, William Galvin, issued the order to testify to Morgan Stanley over allegations that one of the bank's analysts held discussions with investors in which the analyst lowered his expectations for Facebook's revenues this year.
Securities law prohibits employees of the firms underwriting an IPO from selectively disclosing information to investors.
Facebook shares fell again today after the chairman of the U.S. Securities and Exchange Commission, Mary Schapiro, said the regulator will also look at issues related to the IPO on Friday.
"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," she said to journalists after leaving a senate banking committee hearing.
Shares fall for a second day
Facebook shares closed down $3.03, or almost nine per cent, at $31.00.
That added to their 11 per cent drop on Monday and was almost $7 below its initial offering price on Friday. Earlier in the session, it had dropped as much as nine per cent.
The drop came as the Nasdaq, the exchange where Facebook shares trade, held its annual shareholders' meeting, a session that lasted less than half an hour.
Media were not allowed to attend and no Nasdaq investors asked any questions about Facebook's IPO on Friday.
Glitches marred the launch, with some investors unsure if their trades had been executed and trading of the stock delayed by a half-hour.
As well, Reuters reported that in the run-up to the launch, the investment bank leading the effort to sell the shares, Morgan Stanley, cut its prediction for Facebook’s revenue this year.
That will only add to the perception that Facebook’s shares are overpriced.
They are trading at more than 70 times its earnings in the past year, according to FactSet, a research firm. That compares with Apple at 13.7 times and Google at 18.6 times. The Nasdaq index of technology stocks trades at 20.8 times.