If they did, was it legal?

I believe I read that Marc Andreessen is an investor (and board member?) in both companies. Seems painfully unlikely they did not know. And why wouldn't Instagram TELL them?

They may have brokered the deal, and at least gave credibility to the investment to make it easier for Facebook to pay the price. Beautiful result for the portfolio - we are in a bubble and flipping this so quickly means that they have $ return in the bank way before the more speculative investments.