The 2012 initial public offering of Facebook, Inc. (NASDAQ: FB) was just yet another incident where the immediate reaction and trading shenanigans that took place have worked to destroy investor confidence. Facebook’s IPO could have brought in a new generation of investors, but instead it acted further to alienate a large group that is already averse to investing in stocks. Now an SEC settlement that is meant to punish the NASDAQ OMX Group, Inc. (NASDAQ: NDAQ) is such a low dollar amount that it is not even equivalent to a light slap on the wrist. NASDAQ’s management is likely laughing. Main Street got screwed here.

The Securities and Exchange Commission has now charged NASDAQ with securities laws violations over its poor systems and decision-making during the initial public offering and secondary market trading of Facebook shares. The SEC release shows that NASDAQ has agreed to settle the SEC’s charges by paying a $10 million penalty and the SEC boasts that this is the largest settlement ever against an exchange.

So what if it is the largest fine or settlement ever? A fine of $10 million is a joke, particularly if you look at the numbers and circumstances below. NASDAQ has a market value for its public stock of over $5.2 billion, but the company’s latest March 30 balance sheet had $674 million in cash and over $1.8 billion in direct long-term debt. Facebook’s market value is $57 billion even with shares down at $23.65. Investors who tried to buy at the IPO price or in the after-market lost literally billions of dollars on an aggregate basis.

The SEC said that NASDAQ’s trading problem caused more than 30,000 Facebook share orders to remain stuck in the trading system for more than two hours when they should have been promptly executed or cancelled. We have heard multiple reports that many of those investors were told the following Monday that they saw shares appear in their account. It was a disaster and a disgrace, and this is one just one more of those things that acts to destroy the public’s already-waning trust against the stock market even more.

The SEC statement noted, “According to the SEC’s order instituting settled administrative proceedings, despite widespread anticipation that the Facebook IPO would be among the largest in history with huge numbers of investors participating, a design limitation in NASDAQ’s system to match IPO buy and sell orders caused disruptions to the Facebook IPO. NASDAQ then made a series of ill-fated decisions that led to the rules violations.”

While some of those orders may have been spread over multiple firms from multiple clients, this still obviously represents thousands and thousands of investors who got screwed here at the IPO. We have been around the game long enough to know that there is no free lunch in the financial markets. Still, this was a screw-job and we are even cleaning that terminology up so that we do not have offensive content.

The SEC also went on to show that several members of NASDAQ’s senior leadership team convened a “Code Blue” conference call and decided not to delay the start of secondary market trading in Facebook. There was an expectation that they had fixed the system limitation by removing a few lines of computer code, but the SEC said that they did not understand the root cause of the problem and this caused violations of several rules. One of those violations was the NASDAQ’s fundamental rule governing the price/time priority for executing trade orders.

The systems problems encountered during the Facebook IPO on May 18, 2012, caused the cross to fall 19 minutes behind the orders received by NASDAQ. Another point to back this up is that the SEC showed that this time discrepancy caused more than 38,000 marketable Facebook orders to not be included in the cross. It said, “Approximately 8,000 of those orders were entered into the market at 11:30 a.m. when continuous trading commenced, and the remaining 30,000 were ‘stuck’ orders.”

Here is the real insult. Today’s SEC report said, “NASDAQ further violated its rules when it assumed a short position in Facebook of more than three million shares in an unauthorized error account. NASDAQ’s rules do not permit it to use an error account for any purpose. NASDAQ subsequently covered that short position for a profit of approximately $10.8 million, also in violation of its rules. NASDAQ further violated its rules in three other ways during the opening of trading after the end of the display-only period for Facebook and following a halt in Zynga Inc. (NASDAQ: ZNGA) trading.”

The SEC’s order also charged NASDAQ’s affiliated third party broker-dealer NASDAQ Execution Services (NES) for failing to maintain sufficient net capital reserves on the day of the Facebook IPO. In what are called “separate incidents unrelated to the Facebook IPO” the SEC additionally charged NASDAQ with violations of Regulation NMS and Regulation SHO based on its failure to appropriately monitor and enforce compliance with price-test restrictions in October 2011 and August 2012.

So NASDAQ ended up with a magical $10.8 million gain. Shareholders collectively lost billions of dollars here. Imagine how eager the users of the next great social media or Internet craze are going to feel about getting to participate in an overly-hyped up IPO. If you want to know what destroys trust and what causes the feeling that the market is rigged against the retail investor, this joke of a $10 million settlement pretty much sums it up.

What is so frustrating about this news is that it fails to take into account the fallout and the collateral damage which took place as a result. Any time you have confusion of this magnitude in a hot IPO suddenly worth billions of dollars, you end up having an army of other shareholders that are basically forced to hit the panic button and sell because they do not know how bad it will get. This collateral damage drove down the price of the post-IPO trading and contributed to billions upon billions of shareholder losses.

Facebook’s IPO was first signaled at $28 to $35 per share. Then the underwriters raised the price range to a better $34 to $38 range. Then the company decided to sell 25% more shares and many Facebook insiders and employees got to cash out early. After pricing at $38.00 for May 18, 2012 trading, the stock went briefly to $45 after opening around $42 or so and closed out at $38.23 on the first day. By June 1, 2012 Facebook was trading at $27 and Facebook spent much of 2012 trading even under $20 per share. Now the stock is close to $24.

You might just assume that with the name 24/7 Wall St. we are mere champions of the cult of finance regardless of what happens. That is far from the case. The public should be outraged about this small settlement. Investors got screwed here, and $10 million just feels like one more insult on top of injury.

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