Facebook Inc.’s (Nasdaq: FB) initial public offering is getting less friendly with each passing day.

Investors and regulators raised new concerns about the $16 billion IPO as Facebook shares fell a second straight day, extending losses to 18 percent below the $38 offer price.

Morgan Stanley, the lead underwriter, released a statement defending its handling of the May 17 IPO after the Massachusetts security division subpoenaed the investment bank over its communications with clients. The U.S. Securities and Exchange Commission and the brokerage industry’s watchdog both said they may review the offering, and a buyer of Facebook stock sued Nasdaq OMX Group Inc. over glitches in opening-day trading.

The anticipation that preceded history’s biggest technology IPO has been replaced by investor ire, including about whether the offer was priced too high.

“Rather than anything illegal or untoward, the valuation was the truly unfathomable part of what’s causing this frenzy,” said Michael Holland, chairman of Holland & Co, a New York-based investment firm that oversees more than $4 billion.

Facebook increased the number of shares being sold in the IPO by 25 percent last week to 421.2 million and raised its asking price to a range of $34 to $38 from $28 to $35. The shares closed yesterday at $31 in the U.S.

In early U.S. trading before markets opened, the stock today dropped 2.3 percent to $30.28 as of 7:08 a.m. New York time.

Decision Making

Facebook Chief Financial Officer David Ebersman was the point person on the deal, while Chief Executive Officer Mark Zuckerberg and Chief Operating Officer Sheryl Sandberg weighed in on major decisions, said people with knowledge of the matter, who declined to be identified because the process was private. Dan Simkowitz, Morgan Stanley’s chairman of global capital markets, was one of the main bankers. Michael Grimes, global co- head of technology investment banking, also played a key role.

Morgan Stanley, already taking heat for helping price the IPO, received more scrutiny Tuesday. The company may face regulatory review over claims an analyst shared negative news about Facebook with institutional investors before the IPO, said Richard Ketchum, chairman and CEO of the Financial Industry Regulatory Authority, the industry watchdog.

‘Regulatory Concern’

Those communications may be a “matter of regulatory concern” to both Finra and the SEC, Ketchum wrote in an e-mail. He wouldn’t say whether the agency is probing Morgan Stanley.

William F. Galvin, Massachusetts’ secretary of the commonwealth, said separately that his securities division subpoenaed Morgan Stanley to learn more about talks between Scott Devitt, the research analyst, and the firm’s institutional investors about Facebook’s revenue.

“There is a lot of reason to have confidence in our markets and the integrity of how they operate, but there are issues we need to look at specifically with regard to Facebook,” SEC Chairwoman Mary Schapiro told reporters in Washington today.

The New York-based investment bank said its procedures complied with all regulations. “Morgan Stanley followed the same procedures for the Facebook offering that it follows for all IPOs,” Pen Pendleton, a spokesman, wrote in an e-mail.

Morgan Stanley Procedures

The bank said it sent a copy of a revised prospectus that Facebook filed May 9 to all of its institutional and retail investors. The filing disclosed that Facebook’s advertising growth hasn’t kept pace with the increase in users.

Pendleton said many analysts in the syndicate reduced their earnings estimates to reflect that information, and that those revised views were reflected in the pricing of the IPO.

Bloomberg News, citing two people with knowledge of the matter, was first to report on May 10 that Facebook was telling analysts sales may not meet their most optimistic projections.

The IPO was marred on its first trading day when Nasdaq’s platform was overwhelmed by order cancellations and updates that made the stock-market operator unable to finish the auction required to open. The SEC said it will review the trading.

Phillip Goldberg, a Maryland investor, sued Nasdaq yesterday to claim that the stock exchange “badly mishandled” Facebook trading, failing to cancel orders when requested by customers. In a complaint filed in federal court in Manhattan, Goldberg said that he tried to both order and cancel requests for Facebook shares through an online Charles Schwab Corp. account the morning after the May 17 IPO.

Fall Guy

Goldberg is seeking to represent a class of investors who lost money because their buy, sell or cancellation orders for Facebook weren’t properly processed, according to the filing.

Robert Madden, a spokesman for Nasdaq, didn’t immediately return a call seeking comment on the suit.

Nasdaq Chief Executive Officer Robert Greifeld said on May 20 that the opening delay “had no apparent impact on the stock price,” noting the share decline began after all brokers had received confirmation about their trades in the opening auction. Ashley Zandy, a spokeswoman for Facebook, the world’s biggest social network, declined to comment.

Investors looking for a fall guy will have a tough time, said Daniel Genter, who oversees about $3.9 billion as president of RNC Genter Capital Management in Los Angeles.

“Because of the expanded offering and price, everything had to go right,” Genter said. “The fact is, everything didn’t go right. That’s just accentuated the magnitude of the damage.”