The fine levied on Morgan Stanley (NYSE:MS) earlier this week for their involvement in the Facebook Inc (NASDAQ:FB) IPO was the first major move by regulators to assert that there had indeed been wrongdoing in the deal that saw investors lose millions.

Morgan stanley

When the fine was announced a couple of questions lingered on the minds of analysts. “How would Morgan Stanley react?”, and “What exactly was the fine for?”, were the most important of those questions.

Yesterday, Bloomberg contributor Jonathon Weil asked the latter question, and failed to find a reasonable answer. According to the columnist, the consent order issued by the secretary of the commonwealth of Massachusetts, William F. Galvin, did not reveal the actual infringement that led to  the fine.

The reason for the fine, which was widely circulated on the day of its issue, was that a Morgan Stanley senior investment banker had coached Facebook Inc (NASDAQ:FB) executives on the information to be released to investment analysts.

The way the crime is worded in the consent order from the Galvin’s office,  compared with the regulations it accuses Morgan Stanley of breaking, simply do not match up, according to Weil. The details of the crime committed by Morgan Stanley are not clear at all.

There is little doubt at this stage that the Facebook Inc (NASDAQ:FB) IPO was marred by some kind of illicit dealing. It is as of yet unclear who the players were and what exactly they did to pervert the course of the social network’s offering.

The $5 million fine is just 7% of the fees that Morgan Stanley (NYSE:MS) made from the Facebook Inc (NASDAQ:FB) IPO. The relatively miniscule amount involved may anger some who lost money in the deal, but there are still a large number of cases waiting to be heard. The potential cost to the investment bank is monstrous.

The fine was a settlement agreed upon by Morgan Stanley (NYSE:MS) and the secretary of the commonwealth of Massachusetts. It was not contested in court. That may be the reason that the actual crime committed by Morgan Stanley remains unclear. Had the parties met in court, the arguments would have illuminated the proceedings. As it stands Morgan Stanley still does not admit guilt in the case.

If the remaining lawsuits surrounding the Facebook Inc (NASDAQ:FB) IPO are also settled, investors may never be aware of what transpired during the offering proceedings. The underwriters, and Facebook itself, would be well served by quick settlements in this case.

The public would be ill served by such an outcome. There is a duty of care on the part of governments and regulators to inform the public of the ways in which corporations and the financial industry are committing crimes.

The Morgan Stanley fine does very little for the public interest. It is not an admission of guilt. It is an admission of “mistakes were made”. The State of Massachusetts has collected a paltry $5 million, and citizens know nothing more of the malfeasance. This was a great outcome for Morgan Stanley, and an awful precedent for the coming Facebook Inc (NASDAQ:FB) suits.