Wall Street's lackluster response to Facebook's initial public offering (IPO) has drawn the ire of state and federal regulators, who are looking into whether the stock's underwriters tipped off certain clients – but not all – of an analyst's negative report about the company's prospects.

The regulatory probe centers on Morgan Stanley, the lead underwriter for Facebook's IPO, who reportedly told clients days before the stock's debut that the bank's consumer Internet analyst, Scott Devitt, was significantly reducing the company's revenue projections, according to Reuters.

The negative report was based on a May 9 filing with the Securities and Exchange Commission (SEC) that detailed Facebook users' rapid shift toward mobile devices – a move that often contributes to advertising revenue declines. Facebook generates the vast majority of its revenue from advertising.

Devitt cut his revenue projections just days before the IPO, at the same time as Facebook execs were shopping the stock to potential investors. With the help of Morgan Stanley, Facebook eventually priced its stock at $38 per share, the high end of an already inflated price range. The social network also increased the number of shares being sold by 25 percent.

After a relatively stagnant day one, the stock tumbled on Monday and Tuesday, falling to around $31 per share.

A number of research firms and investor houses acknowledged to Reuters that they were made aware of the report and lowered their numbers accordingly. The concern is that Morgan Stanley may have selectively informed larger investors while leaving others at the mercy of the market.

JPMorgan Chase and Goldman Sachs, two other underwriters of the deal, also reportedly lowered their estimates in the days preceding the IPO. It is unclear whether they disclosed the information to all of their clients.

Rick Ketchum, the head of the Financial Industry Regulatory Authority that polices the securities industry, called the situation "a matter of regulatory concern" and suggested that he would look into the matter. The Massachusetts Secretary of the Commonwealth has already subpoenaed Morgan Stanley as part of its probe.  The SEC has said that it will investigate unspecified "issues" with Facebook's IPO.

On the surface, it seems as if Morgan Stanley's actions may have been unprofessional and even immoral, but it is still unclear if they are illegal. The SEC strictly enforces so-called "gun-jumping" rules – which prohibit underwriters from communicating information outside of a company's prospectus – but there is an exception for oral communication, according to the Associated Press. Devitt reportedly conveyed his amended report to major investors over a conference call.

Facebook shares are up four percent in early morning trading on Wednesday.