Does the average, mom-and-pop investor really get a fair deal in our financial markets?

It's a question that is again in focus after favored customers at the major banks and underwriters got an earlier peek into Facebook's (FB) expectations of lower revenues during its second quarter and for the full year.

The small investor, saddled with Facebook shares at $38 each that currently quote $32, can't be blamed for feeling that he may have been done in. Could these lucky, high-net-worth individuals have sold into strength based on their privileged information?

The issue is fraught with complications, but at the outset, it should be clarified that Morgan Stanley (MS), Goldman Sachs (GS), Facebook and other names figuring in the controversy are not yet accused of any wrong-doing as per the laws.

True, there is an impending inquiry by the Securities and Exchange Commission into the initial public offering, and informal reviews of the IPO process are being conducted by the Senate Banking Committee and the House Financial Services Committee -- yet the exact scope of these inquiries is not yet clear.

It is far more likely that no specific transgressions can be pinned on any of the actors in the drama, and the real culprits may be antiquated or inadequate IPO regulations that are taken advantage of by the bigger players.

"While the SEC investigates some of the problems surrounding the Facebook IPO, I think it is important to broadly and publicly examine the procedures for taking a company public," said Senator Jack Reed, Democrat of Rhode Island and chairman of the Senate Banking Subcommittee on Securities, Insurance, and Investment. "We need to ensure the system is fair, balanced, and works for everyone."

Specifically, however, investigators may look at the fact that the lowered guidance by Facebook, the subject of two conference calls with analysts, did find its way into the hands of "more-equal" customers at Goldman Sachs, while it did not fall foul of prospectus disclosure laws simply because the problem was disclosed in the filing, albeit in a veiled and unspecific manner.

It also may be noted that IPO laws do not allow analysts at underwriters of the issue to publish or disseminate research about the company but interestingly, they may communicate that information "orally" to chosen clients, and are not obligated to share the same with the general public.

So, no question about it -- the bigger guys get the choice pickings and the process starts as early as the road shows, a series of meetings where the likes of hedge funds and bulge bracket investors get advance guard.

Saul Griffith is a staff writer at Wall St. Cheat Sheet. As of this writing, he did not own a position in any of the aforementioned stocks.

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