Wall Street woes continue to mount

NEW YORK (AP) - Almost four years after the financial crisis, Wall Street still can't get it right.

Investor anger mounted Wednesday over the initial public offering of Facebook stock last week, which was fumbled by the banks that managed the deal and complicated by technical problems at the Nasdaq stock exchange.

Shareholders filed at least two lawsuits against Facebook and Morgan Stanley, the bank that shepherded the IPO, over reports that it withheld negative analyst reports about Facebook from some clients before the company went public.

It was the second stumble this month by a major Wall Street firm. JPMorgan Chase, usually revered for taming risk, has yet to contain a growing $2 billion loss in one of its trading units.

The missteps are further eroding the confidence of Main Street, or what was left of it after the financial meltdown of 2008, and reinforcing the sense that the game is rigged.

Judson Gee, a financial adviser in Charlotte, N.C., placed a call Wednesday morning to a client who had plowed $50,000 into Facebook stock on Friday, the day of the IPO.

Gee said he called to tell the client, a restaurateur, about reports that Morgan Stanley had told only select customers about an analyst's reduction of revenue estimates for Facebook just before the IPO.

"I could see his jaw dropping on the other side," Gee said. "A lot of expletives came out." He said his client had asked: "How can they give that information to the big boys and not give it to the public?"

In the final planning of the IPO, Facebook, working with Morgan Stanley, raised the total number of shares being offered for sale by 25 percent, to 421 million. They expected extraordinary demand for the stock by investors.

That appears to have been a miscalculation. Facebook stock jumped from $38 to as high as $45 in the opening minutes, but quickly sank toward $38 again. It dropped to about $34 on Monday and $31 on Tuesday. The stock recovered somewhat on Wednesday and climbed $1.

Dayna Steele, a motivational speaker in Houston, said she planned to wait and buy the stock "when everybody finishes suing each other."

The shareholder lawsuit, filed in federal court in Manhattan, accuses Morgan Stanley of withholding the negative analyst report from some clients while it prepared to take the stock public.

One of the investors suing, Dennis Palkon, a professor at Florida Atlantic University, said that IPOs are tricky, but "this one had a lot of glamour, had a lot of interest. It has a lot of users. I thought it'd be a pretty good investment."

He bought 1,800 shares of Facebook at $38 through his ETrade account, meaning that after Tuesday, he was down more than $12,000 on paper.

"It was totally poor planning to raise the price as high as they did and then to add all those extra shares," he said.

Morgan Stanley declined comment on the suit, but it said on Tuesday that it had complied with regulations in how it handled analyst reports before the IPO. Facebook called the lawsuit "without merit."