Questions of Fair Play Arise in Facebook’s IPO Process

As Washington intensifies its scrutiny of the initial public offering of Facebook, the company’s bankers are facing questions about whether the process — even if perfectly legal — was fair.

The concerns center on Morgan Stanley, Goldman Sachs and other banks involved in the IPO that shared a negative outlook about Facebook with a select group of clients, rather than broadly with all investors. In the days leading up to Facebook’s debut, analysts at several banks ratcheted down their growth estimates for the social network. The move came after the company told them that quarterly and annual revenue would be on the softer side, said people briefed on the matter who spoke on the condition of anonymity because they were not authorized to discuss the issue publicly. As is typical in the I.P.O. process, research analysts at Morgan Stanley, Goldman Sachs and other firms contacted certain clients to discuss their revised expectations, while other big investors called on the banks to get their new take. But ordinary mom-and-pop investors did not have the same access to the valuable information. Now, regulators and lawmakers are taking a closer look. This week, the Securities and Exchange Commission’s enforcement division opened a preliminary inquiry into the Facebook offering, a person briefed on the matter said. The Senate Banking Committee and the House Financial Services Committee have also started informal examinations into the I.P.O. process. The scope of the S.E.C. inquiry is unclear, though the agency’s market abuse unit could examine how nonpublic information was disseminated to certain investors — and whether it conflicted with the company’s public disclosures and regulatory filings. One person close to the matter added that the agency has also heard complaints from investors who did not know how many shares they held, amid technical missteps at the Nasdaq exchange.