Facebook's dream IPO is starting to look like a nightmare

The hotly-anticipated Facebook IPO was supposed to be a watershed moment in social media and one of the biggest stock offerings to ever hit Wall Street.

Instead, the event is turning out to be a major humiliation for Facebook, its underwriters and the Nasdaq Stock Market, where Facebook listed its shares.

Critics say the underwriting banks set the price of the offering too high and sold too many shares to the public, and the IPO debacle is raising broader questions from regulators about the IPO process, according to news reports Wednesday.

In the latest blow to the company, three shareholders filed a lawsuit against Facebook Wednesday, saying its chief executive Mark Zuckerberg and several banks led by Morgan Stanley omitted or misrepresented material information about the social networking leader’s business ahead of its IPO. The lawsuit seeks class-action status for all Facebook shareholders, except the defendants.

A Facebook spokesperson said the lawsuit is without merit and the company plans to fight it “vigorously.”

Capitol Hill is also focused on the company. The Senate Banking Committee said Wednesday it is investigating issues related to Facebook’s IPO. The development comes one day after the top financial regulator, the Securities and Exchange Commission, said it would be looking into the company’s IPO. Facebook also faces a lawsuit from an investor from California.