In the days leading up to last Friday’s initial public offering for Facebook stock, the company raised the IPO price by several dollars a share, leading many small-level and amateur investors to wonder if maybe there was something more to the company than a place to post photos of you and your friends waiting in line to see Men In Black III. But at the same time, large investment firms were reportedly bailing on sinking their money into the social media site.

The Wall Street Journal reports on how the folks at L.A.-based Capital Research & Management scaled back the firm’s Facebook investment as the clock ticked down to the IPO, following discussions about the stock with Morgan Stanley, one of the banks underwriting the deal.

It’s not talked about very much, but as part of the preparations for an IPO, securities firms are not forbidden from having selective chats with a few large investors.

“Wall Street firms, for their part, say they give certain information to big clients because the clients pay for this type of data,” writes the Journal. “It is typical in an IPO for analysts or sales staff to give certain information to clients, they added. But that usually doesn’t apply to small investors.”

Thus, while these large firms were able to protect the piles of cash they would otherwise have invested in a stock that finished its fourth day of trading $10 below the initial sale price, individuals — like the retired St. Louis woman who bought 3,000 Facebook shares at that peak value of $42 — are now staring into the investor’s abyss.

“We don’t get the information that these institutional fund managers are getting,” says the woman, who has lost — at least on paper — $30,000. “We’re at a disadvantage.”

Bloomberg has the story of a data systems manager in Louisiana who has been watching his $4,000 investment deflate like something that deflates really quickly and is really depressing to watch deflate.

“It’s disheartening to know that things get over-hyped,” he confesses. “That’s about a 12th of my annual income — so a month’s salary.”

The Facebook fiasco (which, for all anyone actually knows, could eventually turn around and be the greatest investment ever made) has regulators, legislators and lawyers putting the whole IPO process under a microscope.

“Analysts should not be giving opinions about the IPO at the same time their firms are acting as underwriters,” one securities lawyer — not currently involved in any Facebook-related litigation — tells the Journal about the practice of pre-IPO info-sharing. “They should not be giving information that’s not in the prospectus to favored clients.”

Some Big Firms Got Facebook Warning [WSJ.com]

Facebook Investor Spending Month’s Salary Exposes Hype [Bloomberg]

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