Brendan McDermid / Reuters Monitors show the value of the Facebook, Inc. stock during morning trading at the Nasdaq Marketsite in New York, May 21, 2012.

Facebook’s Wall Street investment banks warned top clients of new doubts about the social network’s financial prospects just days before the company’s IPO, according to a series of reports that emerged Tuesday. After receiving briefings from Facebook executives, analysts at the banks lowered their financial forecasts for big institutional clients, some of whom scaled back plans to buy Facebook stock, even as the banks raised the IPO price and number of shares amid a frenzy of hype.

Although Facebook had publicly disclosed mobile advertising challenges, the new revelations raised questions about whether Facebook’s underwriters selectively disclosed information that gave favored clients an unfair advantage over other investors. The revelations, which came as Facebook shares plunged nearly 9% Tuesday, drew immediate scrutiny from federal regulators as well as a subpoena from Massachusetts officials. Now, Facebook has been hit with a shareholder lawsuit for concealing negative information ahead of the offering. Meanwhile, the Nasdaq stock exchange faced a growing chorus of anger — and a class action lawsuit — over its botched handling of the IPO, which has already become the worst-performing three-day start for an offering over $1 billion in the last five years.

Facebook’s highly-vaunted IPO — which was supposed to be a shining moment for the social network, as well as its lead banker Morgan Stanley and the Nasdaq exchange — has morphed into a debacle that’s reinforced some of the worst stereotypes about Wall Street: that corporate executives and their bankers engineer IPOs to maximize profits at the public’s expense; that Wall Street’s own systems have become too complex for its personnel to handle; and that the entire game is a hype-fueled casino, rigged for the house with a sucker played by the average investor.

(More: Facebook IPO Fallout: Four Lessons from a Rocky Public Debut)

“The FB IPO selective disclosure stories just keep getting worse,” Sallie Krawcheck, former head of wealth management at Bank of America, wrote in a Twitter message. “If true, an absolute outrage. Come on, Wall St!!”

Just what did Facebook executives tell the stock analysts at the investment banks in the days before the offering? On May 9, Facebook issued an updated prospectus with the Securities and Exchange Commission. In dense securities-legalese, Facebook said that the number of daily users was increasing faster than the number of ads the company was serving, a change it attributed to its fast-growing mobile user base. Such an updated “risk factor” may have served to satisfy regulatory requirements prior to the IPO.

But Facebook executives apparently went further, according to The New York Times, personally calling stock analysts at the company’s top IPO underwriters to update them on the company’s business challenges. “Facebook changed the numbers–they didn’t forecast their business right and they changed their numbers and told analysts,” a person at one of Facebook’s banks told Reuters. “The analyst’s underwriters then all changed their numbers based on what management was telling them.”

As a result, analysts at four of Facebook’s top underwriters, Morgan Stanley, Goldman Sachs, JPMorgan Chase and Bank of America, lowered their financial forecasts for Facebook just days before the IPO, according to Reuters. The banks then relayed the lowered financial forecasts to certain large clients, one of whom was warned that second-quarter revenue could be “5 percent lower” than earlier estimates, according to The Times.

(More: Facebook IPO: After the Hype, Investors Are Betting on Hope)

None of this may be illegal, but here’s the crucial point: Although the investing public should have taken heed of Facebook’s (very opaque) prospectus update, the overall market was not the beneficiary of personal calls from company executives or revised financial projections apparently based on more detailed information than was available to the general public. Indeed, that information seems to have been quickly funneled to favored clients. Meanwhile, the investment bankers, led by Morgan Stanley, raised the IPO offering price in the face of supposedly white-hot investor demand that, days later, proved to have been significantly overstated. Facebook shares have plunged 20% since the IPO, wiping out $17 billion from the company’s valuation.

The new allegations prompted concern from federal and state officials on Tuesday, as well as a defense of its actions by Morgan Stanley. And Facebook said the shareholder lawsuit lacks merit:

William Galvin, Massachusetts’ secretary of state, issued a subpoena to Morgan Stanley seeking information about discussions the bank’s analysts may have had with favored investors about Facebook’s revenue prospects.

Financial Industry Regulatory Authority chairman Richard Ketchum told Reuters: “That’s a matter of regulatory concern to us and I’m sure to the SEC.”

Securities and Exchange Commission Chairman Mary Schapiro told reporters: “I think there is a lot of reason to have confidence in our markets and in the integrity of how they operate, but there are issues that we need to look at specifically with respect to Facebook.”

In a statement cited by Reuters, Morgan Stanley said the procedures it followed for the Facebook IPO “are in compliance with all applicable regulations.”

Facebook, meanwhile, issued the following statement Wednesday: “We believe the lawsuit is without merit and will defend ourselves vigorously.”

(More: Even Pre-IPO, Facebook’s Executives Were Richly Rewarded)

Meanwhile, Nasdaq, still reeling Tuesday over its botched handling of the IPO, was hit with a lawsuit seeking class-action status for those who lost money in the offering. Trading was delayed for 30 minutes on Friday, and trades for millions of shares were never confirmed, leading one trading executive to brand the debacle “arguably the worst performance by an exchange on an IPO ever.” Nasdaq CEO Robert Greifeld blamed “poor design” in the exchange’s trading software — ironic given the exchange’s reputation as the preferred home of tech companies. On Tuesday, another Nasdaq official claimed the exchange would have halted the offering altogether had it fully understood the extent of its technical problems. But hours later, still another exchange official seemed to contradict that statement, telling Reuters that it would have gone forward with the “right solution” to the trading snafu.

Taken together, the latest developments in Facebook’s IPO have dealt a serious blow to what should have been a triumphant public debut for the social networking giant, as well as a moment of glory for Morgan Stanley and Nasdaq. Instead, the botched IPO has turned into a debacle for just about everyone — except Facebook’s early investors and insiders, who sold $9 billion worth of shares that they had acquired at lower prices. “It’s dreadful for the markets,” former SEC Chairman Arthur Levitt told Reuters of the IPO and its handling by Wall Street banks and Nasdaq. “It’s an event with long-lasting negative implications for an industry that can ill afford this kind of blemish, and the last chapter hasn’t been written. Nobody looks good here.”