Mark Zuckerberg ringing Nasdaq's opening bell on the day of Facebook's IPO. (Photo: CBS)

It's been an eventful year for Facebook stock: From an ill-fated IPO that cost market-makers millions to a share price that plummeted more than 50 percent from its offering price, and most recently, a $5 million settlement between the company's lead investment bank and a Massachusetts regulator, there's been hardly a dull moment in the Facebook's short life as a public company.

Through the tumult, one thing has remained consistent: The research arms of the Wall Street banks that led the offering have maintained a 'buy' rating on the stock. According to The Wall Street Journal, Morgan Stanley, JPMorgan and Goldman Sachs have continued to recommend Facebook stock to investors—even as mutual funds run by those banks have unloaded Facebook shares:

Facebook's top underwriters aren't the only firms with an upbeat view of the company's future. Among the 33 firms that sold Facebook shares to the public in the $16 billion deal, 62% of the 208 analyst reports have urged investors to buy the shares, according to Thomson Reuters. None has suggested investors sell the shares.

At Morgan Stanley, J.P. Morgan and Goldman, the "buy" recommendations kept coming even as in-house mutual funds sold some of their Facebook holdings.

You can take that one of two ways: The banks really do maintain Chinese walls between their research and investment management divisions. Alternatively, that "the system is being gamed by the financial-services industry," as Massachusetts Secretary of the Commonwealth William Galvin told the Journal.

We're inclined to sympathize with both views. In either case, with Mr. Galvin still investigating the offering, we can expect that the twisted tale of Facebook's IPO won't fade away with the new year.

Grimes. (Noam Berger/Bloomberg/Getty)

In the aftermath of Facebook's ill-fated initial public offering, it was hard to blame Joe Facebook-fan for feeling like he'd gotten screwed. Not only had the share price failed to pop, it had plummeted, 13 percent in the first week of trading alone, not the results anyone expected before hopping on Mark Zuckerberg's supposed-gravy train.

But screwed how, exactly? After all, it wasn't just the retail investors that bit the bullet on Facebook's ill-fated initial public offering. And much of the attention in the weeks after the IPO centered on Nasdaq's technical glitches, not mom-and-pop's informational disadvantage with respect to deep-pocketed institutional investors.

Well, now there's some hard evidence pointing to the notion that the retail investor didn't get a completely fair shake: In a consent order released today, the Massachusetts state security regulator fined Morgan Stanley $5 million, after a senior investment banker at the firm advised Facebook to share certain revenue projections with research analysts—projections that never made it into Facebook's public filings.

Here's the gist of it:

On May 3, Facebook filed an amended S-1 with the Securities and Exchange Commission, in which the company identified its now-famous mobile problem: Many of its new users were accessing the social media site through mobile phones, but the company was struggling to deliver ads to said devices, leading the company to cast doubt on its own previous revenue projections.

Four days later, Facebook launched its IPO roadshow, meeting with investors in advance of its May 18 offering. According to the Massachusetts consent order, on May 7, Facebook chief financial officer David Ebersam told a senior Morgan Stanley investment banker—not identified in the legal documents, but widely believed to be Silicon Valley insider Michael Grimes—that second quarter numbers had diminished Mr. Ebersam's confidence in the company's projections.

What to do? Mr. Grimes and Mr. Ebersam got together with Facebook counsel and decided to put out another amended S-1, to ensure that all investors had equal access to the CFO's misgivings on 2012 revenue. So far, so good. Then, according to the documents, Mr. Grimes suggested that Mr. Ebersam get on the phone with the 20 research analysts covering Facebook to discuss the new filing.

And that was a problem. Mr. Ebersam declined to make the calls himself, instead delegating the responsibility to Facebook's treasurer, who isn't named in the consent order. Mr. Grimes wrote out a script, and eight minutes after Facebook filed a new S-1 was filed, the treasurer started to dial.

Here's the script, as reproduced in the consent order:

It appears that it was Mr. Grimes close involvement with the process that violated the Global Research Analyst Settlement—which requires banks to maintain so-called Chinese Walls to avoid conflicts of interest between their research and underwriting divisions—and led to the Massachusetts fine.

Indeed, Mr. Grimes seems to have been aware that he was skirting legaility. In his testimony before the Massachusetts regulator, Mr. Grimes said, "I was far down the hall so I wouldn't hear anything; I took extra precaution to do that, and sat on the floor."

But if you're investor who lost money on the Facebook IPO, more material to your concerns might be this: In the script Mr. Grimes authored, the banker instructed the Facebook treasurer to say "we believe we are going to come in the lower end of the $1.1. to $1.2 bn range for Q2 based upon the trends we described in the foreclosure."

That was vital information that never made it into the public disclosure, and while you might ask over how much the information might have changed the average retail investors behavior, Massachusetts Secretary of State William F. Galvin isn't quibbling:

“The improper influence of Morgan Stanley’s investment bankers over research analysts is yet another example of an unlevel playing field, where Main Street investors were put at a significant disadvantage to Wall Street,” he said a statement.

Cause you're growns-up and you're growns-up and you're growns-up!

It's been less than a week since Facebook debuted on the public markets. But each day, it seems, unearths new contenders for another round of the Facebook IPO Blame Game. (Play along at home!)

While Congress plans its investigation into underwriters like Morgan Stanley, Dan Primack dropped an interesting perspective in his Term Sheet newsletter: Blame the "adults."

Institutional investors also didn't want Zuckerberg to take Facebook public unless he added some big-name "adult" supervision. After all, what does a 20-something know about running a multi-billion dollar public corporation? Just imagine the costly mistakes he would make.

Hence hiring seasoned executives like Sheryl Sandberg as COO and David Ebersman as CFO. But the hires meant to boost Facebook's maturity level with the public markets may have backfired.

Mr. Primack, for example, has some choice words regarding Ms. Sandberg's decision to recuse herself from the underwriter selection process based on her previous relationships at Google.

Pardon me, but wouldn't such relationships actually have been important? Not to get bankers to take on Facebook as a client -- everyone wanted them -- but because she might have a better sense of who would, and wouldn't, be the best fit? And, once Facebook did pick her pal Michael Grimes over at Morgan Stanley, wouldn't it have been good to have a third opinion in the room -- particularly one so close to both key players?

Mr. Grimes, if you'll recall, helped Morgan Stanley lock down deals for the LinkedIn, Pandora, Zynga, and Groupon IPOs, which Henry Blodget credits to his "dork" cred and love of video games.

As the Wall Street Journal reports, Mr. Grimes was the Facebook CFO's "main confidant."

"This IPO was an Ebersman and Grimes show," said one of the people familiar with the matter. "They were joined at the hip."

It seems they both saw eye-to-eye on decisions that may have sealed Mr. Ebsersman's fate as "Facebook fall guy."

The Journal's sources say it was Mr. Ebersman, backed by Morgan Stanley, who decided--less than three days before the IPO--to boost the number of shares Facebook would offer by 25 percent.

His main adviser at lead underwriter Morgan Stanley assured him there was plenty of demand, they said.

That decision by the 41-year-old Facebook executive may have doomed any real chance the social-networking company had that its stock would jump on its first day of trading—a hallmark of successful IPOs.

Now, just because an IPO pop makes a big noise doesn't necessarily mean its a hallmark of success. But Mr. Primack notes, Mr. Ebsersman may also have been guilty of selective disclosure:

Then there is Ebersman, who oversees a financial operation that allegedly warned underwriter analysts -- but not others -- to cut Q2 guidance estimates (even if all it really said was "please start paying attention to what we said about mobile"). If true, what he (and MS) did may actually have violated securities regulations -- and also means he shouldn't be too quick to count his unvested shares.

While potential shareholders were fretting about Mark Zuckerberg's controlling share of Facebook, who was watching the grown-ups table?

Mr. Lavalle.

Last week, the recently-launched curated recipe site Gojee scored a pick-up from swissmiss, a design blog and studio run by Tina Roth Eisenberg, which called Gojee "a beautifully designed new food lover destination." Swissmiss referred more users than a review by TechCrunch, co-founder Michael Lavelle told Betabeat this morning. "She put us up last Wednesday and it was pretty much insanity from that point on," he said, comparing the site's growth to the viral new music lover destination, Turntable.fm. "The post sent us 10,000 sign-ups in 24 hours, and it blew up from there."

But Gojee wasn't always a beautifully designed new food lover destination. 

1. Mint.com for food: Four months in development. Contract with a major New York grocery chain. Signed up 1,000 users in the first week. No one came back.

Once upon a time, Mike Lavalle and Tian He were two ordinary bankers at Morgan Stanley. They were bored, they were overworked, and they read in the news about the acquisition of Mint.com by Intuit for $170 million or so.

They decided to do the same thing for food. Mr. Lavalle met Nick D'Agostino at the gym and signed up the D'Agostino grocery chain as Gojee's first partner. The founders quit Morgan Stanley, Mr. He taught himself Ruby on Rails and "we pretty much built Mint for food. Lots of charts and graphs, budget, expenses, nutrition profiles." They launched and 1,000 users signed up in the first week.

"At the time we thought it was amazing," Mr. Lavelle said. "But then no one came back so we were like, uh oh, what's going on here... we took a big step back and said what did we do wrong?"

They decided there were three problems: people don't relate to food as quantitatively as they do to their banks statements, the design was poor, and people didn't like looking at the data--it didn't say what they wanted it to say.

2. Twitter for food. Four months in development. "Everyone just pooped all over it."

The pair decided it was time to switch things up. The data needed context, they decided.

"It was a stream of content that gives you stories or related qualitative context around your data, i.e. you went shopping for food, you bought chicken, mushrooms and onions, here's a recipe that uses chicken, mushrooms and onions," he said. "You bought this kind of peanut butter, here's a coupon for another kind."

This idea was hot, the pair thought. They'd been bootstrapping the start-up, but decided to raise a little scratch from friends and family and brought on two engineers, a designer, and a content manager and built a new site.

It bombed. There was overwhelming negative feedback from everyone they showed the site too. "This is getting pretty bad," Mr. Lavalle recalls saying to Mr. He. "We're nine months deep, blowing through all this money, and we have nothing to show for it. We just built two shitty products."

3. A new kind of recipe site. Three months in development. "We're afraid to touch it because people love it so much."

"It was March 3, at 3 a.m. We're trying to fix Twitter for food," Mr. Lavalle recalls of the pivotal conversation with his co-founder. "It's been nine months and we haven't done anything well. We have to build something amazing that's going to be fun for us too. We're tired of building things that we aren't excited about.

"We know we can crush recipes," he said.

They redesigned Gojee to be a curated recipe recommendation site, that suggests recipes from a hand-picked database based on what users say they're craving, what they don't want to eat, what they have in the pantry, and what their recent purchases were. They're still working with the data set they started out thinking about--food purchases from rewards cards--which Mr. Lavalle says has not been delivered to users yet in any form.

The layout is simple--it's basically giant pictures of food--with simple drop-down menus and an obvious experience. The designer, Adam Meisel, sent a link to swissmiss, and then it got picked up by Gizmodo and other blogs. User engagement is also high, with new sign-ups returning and using the site.

The team is waiting for the user growth to settle down before iterating, although they are working on adding filters for vegetarians and gluten allergies. Gojee is currently raising a round of funding and there is significant investor interest, especially on the West Coast, Mr. Lavalle said--with any luck, this will be the company's final pivot.

It's the reason why, even as their customers flocked to services like Twitter and Facebook, the big banks banned their brokers from using these services for work.

But Morgan Stanley, the largest U.S, retail brokerage with 17,800 advisers, now plans to allow its staff limited access to both Twitter and LinkedIn, which just completed a very successful IPO, on which Morgan Stanley was a lead underwriter. 

Every tweet and status update will be captured by the firm and stored as official record. Broker's won't be allowed to recommend one another on LinkedIn or tweet out anything beyond pre-approved company reports and broad market outlooks.

The volume of these folks already operating on StockTwits under assumed names kind of makes the announcement seems a bit inane, but no doubt some drama will quickly emerge as insider gossip from the street begins to leak onto Twitter.

Its got to be state of the art!

Some of the nation's biggest banks and venture investors have partnered with New York City Investment Fund to create the FinTech Innovation Lab.

The program is a annual twelve-week incubator to find and foster promising startups working on financial technologies.

Participating banks include all the big boys — Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Bank of America.

"What's really great and unique about this program is that the startups involved get to work directly with the chief technology officers from the nation's top financial institutions," says Maria Gotsch, CEO of the NYC Investment Fund.

Startups will need to have an alpha version of their technology to be considered. Applications are due by the end of Janurary, with the program slated to begin this May.

"For entrepreneurs targeting the financial services sector, this program is a unique opportunity to get access and feedback from potential users and funders," commented Fred Wilson, board member of New York City Investment Fund and Managing General Partner of Union Square Ventures. "This type of market input is invaluable."

In other words, this is a killer opportunity for startups to get on the fast track with some of the biggest players in the $14 billion market for banking and securities software.

bpopper [at] observer.com | @benpopper