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 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 Monday and $31 Tuesday. The stock recovered somewhat 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.
Morgan Stanley declined to comment on the lawsuit, but it said Tuesday that it had complied with regulations in how it handled analyst reports before the IPO. Facebook called the lawsuit "without merit."
The Senate Banking Committee, the Securities and Exchange Commission and other regulators also plan to look into the IPO.
The bungled IPO came little more than a week after JPMorgan CEO Jamie Dimon disclosed the $2 billion loss.
He has said the bank was hedging against financial risk, but regulators have questioned whether it was a gamble for profit instead.
Elizabeth Warren, architect of the Consumer Financial Protection Bureau and a Democratic candidate for Senate from Massachusetts, said Wall Street has lost an image that once said, "We are solid and we will be here forever."
When Congress passed an overhaul of financial laws in 2010, it was designed to prevent a repeat of the 2008 crisis. The details are still being written, and the financial services industry is fighting hard against many of those changes. Two weeks ago, Treasury Secretary Timothy Geithner said the JPMorgan loss "helps make the case" for tougher rules for banks.
Michael Barr, a law professor at the University of Michigan who was an architect of the overhaul, said he was concerned that the Facebook episode might make it harder for other companies to raise money by taking themselves public.
"The more the system feels like it's rigged, the harder it is going to be for companies to raise money and for investors to freely participate," he said.