The market didn’t get any rosier for Facebook on Tuesday, as shares spiraled to their lowest level since the social network went public at the end of last week. On the company’s third day of trading, shares closed at $31 , or 8.5 percent off of their opening bell price.

Minutes before closing bell, Reuters reported that the social network had settled a lawsuit in federal court in San Jose, Calif., over its “sponsored stories” feature. According to the report, plaintiffs alleged that the feature had publicized users’ “likes” without offering “compensation or the ability to opt out.” The terms of the deal were not listed in court filings, according to Reuters.

Facebook declined to comment on the case.

Meanwhile, the banks handling Facebook’s initial public offering are under scrutiny after a separate Reuters report said Tuesday that an independent analysts at Morgan Stanley, as well as JPMorgan, had scaled back their forecasts for Facebook revenue ahead of the offering.

Morgan Stanley declined to comment on the report. Richard Ketchum, chairman and chief executive of the Financial Industry Regulatory Authority, told the news service that those actions, if true, were “a matter of regulatory concern.”

While leaving a Senate banking hearing, Securities and Exchange Commission Chairman Mary Schapiro told Reuters, “I think there is a lot of reason to have confidence in our markets and in the integrity of how they operate, but there are issues that we need to look at specifically with respect to Facebook.”

The SEC has said it will look into incidents surrounding the way Nasdaq handled the firm’s offering after technical glitches led to delays at the stock’s open.

Apart from the Nasdaq issue on Friday, however, questions about Facebook’s business model plague the firm and are likely contributing to the poor market showing.

In an article in the Massachusetts Institute of Technology’s Technology Review, former AdWeek editor Michael Wolff wrote that Facebook is “not only on course to go bust, but will take the rest of the ad-supported Web with it.”

Facebook, Wolff said, is essentially an advertising company that has convinced people that it will figure out how to make real money off of Web advertising.

“Absent an earth-shaking idea, Facebook will look forward to slowing or declining growth in a tapped-out market, and ever-falling ad rates, both on the Web and (especially) in mobile,” he said. “Facebook isn’t Google; it’s Yahoo or AOL.”

Right now, Facebook makes the vast majority of its revenue from advertising but is working to build out its platform to more sites across the Web through its Open Graph. By building apps and encouraging sites to use its commenting and log-in systems, Facebook is spreading beyond its own borders and letting its data work for other sites. That, the company hopes, will help boost revenue.

The site also keeps a tight hold on its data — something that has irked competitors such as Google chief executive Larry Page. Page said in a Monday interview with talk-show host Charlie Rose that Facebook holds its users data “hostage” because it doesn’t share its information with others.

“It’s been unfortunate that Facebook’s been pretty closed with their data,” he said. “You don’t want to be holding your users hostage,” he said, adding that he believes it’s important for users to be able to move their data out of a system.

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