UPDATE 1-Regulators may review Morgan Stanley-Facebook allegations

Tue May 22, 2012 2:20pm EDT

WASHINGTON May 22 (Reuters) - The Financial Industry Regulatory Authority's chairman said on Tuesday that regulators plan to review allegations that Morgan Stanley shared negative news before Facebook's initial public offering with institutional investors.

"The allegations, if true, are a matter of regulatory concern" to FINRA and SEC, Ketchum told Reuters.

Ketchum made the remarks to Reuters in response to allegations that Morgan Stanley, the lead underwriter on the deal, unexpectedly delivered some negative news to major clients in the run-up to Facebook's $16 billion IPO: The bank's consumer Internet analyst, Scott Devitt, was reducing his revenue forecasts for the company.

The allegations were detailed in a Reuters story late Monday [ID: nL1E8GLGSG]. It is unusual for analysts at lead underwriters to make such changes so close to the IPO, sources told Reuters. It is unclear whether Morgan Stanley only told its top clients about the revised view or spread the word more broadly.

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