June 4, 2006 10:15 PM PDT

Investors sue Vonage over IPO

Internet phone provider Vonage is being sued in a class action lawsuit on behalf of shareholders who bought stock in the company prior to its initial public offering.

The suit filed on Friday in the United States District Court for the District of New Jersey by the Atlanta-based law firm Motley Rice asserts that the Internet telephony provider, its officers and the IPO's underwriters misled investors.

Vonage's stock, which debuted on the New York Stock Exchange on May 24 at $17 per share, has lost about 30 percent of its value in its first seven days of trading. The complaint filed against Vonage claims that the company's investors were motivated to push for an IPO because the company had been losing money, and the investors were desperate for an exit strategy. Vonage raised about $531 million from the offering.

Vonage had taken the unusual step of offering about 13.5 percent of its IPO shares to customers. The complaint alleges that Vonage's officers decided to offer shares to customers because they knew institutional investors who normally buy IPOs would be reluctant to buy Vonage stock. Vonage has consistently lost money and has never been profitable.

Since the rapid decline of the stock, some of Vonage's shareholders have threatened not to pay for the shares they were allocated. But Vonage said last week through a statement that it will pursue payment from anyone who was allocated shares.

The suit further alleges that Vonage and its underwriters-- Deutsche Bank, Citgroup and UBS--violated a securities law that "requires that a company recommending the purchase or sale of its securities to a customer must have a reasonable basis for believing that the recommendation is suitable for the customer," the law firm said in its statement.

The complaint asserts that Vonage "had no such reasonable basis in this case and improperly crammed investors into the Vonage IPO regardless of their suitability." It further says that the underwriters who should have been making sure the customers were suitable candidates for the stock did not fulfill their obligation.

Vonage representatives were unavailable for comment.

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Vonage Holdings Corp., IPO, underwriter, investor, IP telephony

25 comments

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No good deed goes unpunished...
It never ceases to amaze me how something in this country that
was done for the good of others is quickly turned into a bunch
of people wanting a free lunch (and dinner). The market is all
about uncertainty, and if you buy shares of a company and they
go down, that is a part of life. Get over it and and either get out
of the market or play the long term on the stock. Life happens.
Not too many companies would bother to offer a first shot of
stock to its customers, especially in this thankless world of
markets, but Vonage did just that -- they wanted to give back to
the customers that made it what it is today. Customers were
given the option of purchasing stock before the public sale.
They could accept the offer and invest in the company or decline
it. The market saw a different valuation for the price of the stock
than Vonage did, which resulted in a loss at the IPO. People
made a commitment to purchase stock and when called to pay
the piper, they refused, and found a loophole to get away with it.
By law, the company had to honor the options that customs said
they would purchase. But, because some want to get away
without having to pay, Vonage will be left to pay for that stock.
Now, some greedy bozos and their lawyers find a way to make a
quick buck off of the company that tried to do the right thing.

Welcome to America.
Bend over by choice or be bent over by force.
Posted by jasonemanuelson1 (82 comments )
Reply Link Flag
being allowed to buy stock in a company is now a favor?
I guess we should also be thankfull for being allowed to pay for any stock purchase and not complain about any fraud.
Posted by gubbord (171 comments )
Link Flag
No good deed goes unpunished...
It never ceases to amaze me how something in this country that
was done for the good of others is quickly turned into a bunch
of people wanting a free lunch (and dinner). The market is all
about uncertainty, and if you buy shares of a company and they
go down, that is a part of life. Get over it and and either get out
of the market or play the long term on the stock. Life happens.
Not too many companies would bother to offer a first shot of
stock to its customers, especially in this thankless world of
markets, but Vonage did just that -- they wanted to give back to
the customers that made it what it is today. Customers were
given the option of purchasing stock before the public sale.
They could accept the offer and invest in the company or decline
it. The market saw a different valuation for the price of the stock
than Vonage did, which resulted in a loss at the IPO. People
made a commitment to purchase stock and when called to pay
the piper, they refused, and found a loophole to get away with it.
By law, the company had to honor the options that customs said
they would purchase. But, because some want to get away
without having to pay, Vonage will be left to pay for that stock.
Now, some greedy bozos and their lawyers find a way to make a
quick buck off of the company that tried to do the right thing.

Welcome to America.
Bend over by choice or be bent over by force.
Posted by jasonemanuelson1 (82 comments )
Reply Link Flag
being allowed to buy stock in a company is now a favor?
I guess we should also be thankfull for being allowed to pay for any stock purchase and not complain about any fraud.
Posted by gubbord (171 comments )
Link Flag
As the Great P.T. Barnum Put it...
There's a sucker born every minute. This was a suckers deal from the get go. If anyone of the "investors" would have done there home work like I did regarding this securities offering they would have high-tailed it to the hills. Every analyst on the planet in literally hundreds of articles on the Web and in magazines and newspapers regarding the IPO warned investors about the possible turnout and were correct in their assumptions--steer clear. If they had only paid attention.
Posted by WJeansonne (480 comments )
Reply Link Flag
As the Great P.T. Barnum Put it...
There's a sucker born every minute. This was a suckers deal from the get go. If anyone of the "investors" would have done there home work like I did regarding this securities offering they would have high-tailed it to the hills. Every analyst on the planet in literally hundreds of articles on the Web and in magazines and newspapers regarding the IPO warned investors about the possible turnout and were correct in their assumptions--steer clear. If they had only paid attention.
Posted by WJeansonne (480 comments )
Reply Link Flag
It's their own fault
I'm sorry, but Vonage and/or the underwriters are not to blame here. I've been a Vonage customer for years, enjoy their service and was excited that the company decided to reward their customers who helped them get to this point with a chance to get a piece of their IPO. After reading the prospectus IN ITS ENTIRETY, seeing that they lost $500+ million last year and reading the 100+ articles on the net about how Wall Street was sour on the IPO, I decided NOT to invest. On every page of the IPO website and throughout the prospectus, it is clearly stated that (1)Vonage is losing money, (2)your stock may become worthless, and (3)no one (neither Vonage or its underwriters) recommend that you participate in the IPO. Did I maybe read something different than those people who seem to think that they were misinformed and taking advantage of? I don't think so. I think I just actually took the time to analyze the situation completely and made an informed decision.
Posted by jason815 (50 comments )
Reply Link Flag
It's their own fault
I'm sorry, but Vonage and/or the underwriters are not to blame here. I've been a Vonage customer for years, enjoy their service and was excited that the company decided to reward their customers who helped them get to this point with a chance to get a piece of their IPO. After reading the prospectus IN ITS ENTIRETY, seeing that they lost $500+ million last year and reading the 100+ articles on the net about how Wall Street was sour on the IPO, I decided NOT to invest. On every page of the IPO website and throughout the prospectus, it is clearly stated that (1)Vonage is losing money, (2)your stock may become worthless, and (3)no one (neither Vonage or its underwriters) recommend that you participate in the IPO. Did I maybe read something different than those people who seem to think that they were misinformed and taking advantage of? I don't think so. I think I just actually took the time to analyze the situation completely and made an informed decision.
Posted by jason815 (50 comments )
Reply Link Flag
vonage admits some mistake
I think the big issue is that Vonage has already admitted some fault by as the company says in public filings with the Securities and Exchange Commission, is that Vonage may have violated securities laws by offering its customers the shares on an Internet site that failed to provide a link to a prospectus, a legal document detailing to prospective investors all aspects of the stock offering, including any risks.

It wasn't till after folks started buying the IPO that Vonage changed their site to require reading the prodpectus. So not all information was available to everyone equally.
Posted by jcruz1027 (3 comments )
Reply Link Flag
prospective
I agree with the person that said it's their own fault. As a longtime, happy vonage customer, I briefly investigated the IPO but was scared by all the warnings that you had to get by before you made an offer to buy into the IPO. The perspectus was on the website and it was quite intimidating. I think anyone who bought had to know they were taking a chance.
Posted by alindgren (2 comments )
Link Flag
vonage admits some mistake
I think the big issue is that Vonage has already admitted some fault by as the company says in public filings with the Securities and Exchange Commission, is that Vonage may have violated securities laws by offering its customers the shares on an Internet site that failed to provide a link to a prospectus, a legal document detailing to prospective investors all aspects of the stock offering, including any risks.

It wasn't till after folks started buying the IPO that Vonage changed their site to require reading the prodpectus. So not all information was available to everyone equally.
Posted by jcruz1027 (3 comments )
Reply Link Flag
prospective
I agree with the person that said it's their own fault. As a longtime, happy vonage customer, I briefly investigated the IPO but was scared by all the warnings that you had to get by before you made an offer to buy into the IPO. The perspectus was on the website and it was quite intimidating. I think anyone who bought had to know they were taking a chance.
Posted by alindgren (2 comments )
Link Flag
It's like gambling, there risks!!!
These "Investors" had a choice. Nobody put a gun to their head and told them to invest in Vonage. I don't feel sorry for them. They thought they were going to "Get Rich Quick" and since it back fired, they are all pissed off about it and decided to that the real way to get rich is to "Sue". I hope they loose their case. Next time do you homework and investigate before you invest!.
Posted by ag1010 (8 comments )
Reply Link Flag
It's like gambling, there risks!!!
These "Investors" had a choice. Nobody put a gun to their head and told them to invest in Vonage. I don't feel sorry for them. They thought they were going to "Get Rich Quick" and since it back fired, they are all pissed off about it and decided to that the real way to get rich is to "Sue". I hope they loose their case. Next time do you homework and investigate before you invest!.
Posted by ag1010 (8 comments )
Reply Link Flag
Vonage IPO
Wow,who would have thought that people investing in an IPO would have the stock go down? I guess they were in the 1st grade from 1999-2001 when we told that these IPO'S weren't making money,they didn't need to,because they were all going to grow to 300.00 bucks a share.
Want a list,sunw,rthmq,mtrn,biko,cmgi,lvel,djt,& I could go on for a week.
Did these people think they would buy at $17.00 and sell at 3:55 PM for $50.00? Listen boys and girls,you were swimming with the sharks & your cage door was open!Not only,if you bothered to read the information that the company wasn't making any money,in 90 days the market makers would be able to sell their shares,the insiders would sell their shares & you guys,well trust me,when your law suit is settled you might get 10 cents on the dollar.Unless ,of course if you are the lawyer doing the class action,that's where the money will be going. Arn't you sorry now that you didn't listen to Mom & Dad and become a lawyer?
The amazing thing is that it never changes,just the names on the stocks!
Bernie 1
Posted by bernie 1 (2 comments )
Reply Link Flag
Vonage IPO
Wow,who would have thought that people investing in an IPO would have the stock go down? I guess they were in the 1st grade from 1999-2001 when we told that these IPO'S weren't making money,they didn't need to,because they were all going to grow to 300.00 bucks a share.
Want a list,sunw,rthmq,mtrn,biko,cmgi,lvel,djt,& I could go on for a week.
Did these people think they would buy at $17.00 and sell at 3:55 PM for $50.00? Listen boys and girls,you were swimming with the sharks & your cage door was open!Not only,if you bothered to read the information that the company wasn't making any money,in 90 days the market makers would be able to sell their shares,the insiders would sell their shares & you guys,well trust me,when your law suit is settled you might get 10 cents on the dollar.Unless ,of course if you are the lawyer doing the class action,that's where the money will be going. Arn't you sorry now that you didn't listen to Mom & Dad and become a lawyer?
The amazing thing is that it never changes,just the names on the stocks!
Bernie 1
Posted by bernie 1 (2 comments )
Reply Link Flag
If shares had shot up to $34 would there be any suits?
I agree with others who have commented on the these suing investors. An IPO is a risk. The prospectus stated that the company may never show profit. Many analysts did not recommend the investment. But people saw a quick profit on an IPO and went for it. It didn't work out. Time to move on. The investors' gamble on an IPO didn't work this time. Would the same people have even opened their mouthes if the shares shot up to $34 a share. I don't think so. Besides you couldn't even sign up for the IPO unless you passed through the prospectus page. If they didn't read it or couldn't understand it and didn't seek a professional's advice or guidance, who's fault is that? The investors fault that's who.
Posted by jsprusko (2 comments )
Reply Link Flag
If shares had shot up to $34 would there be any suits?
I agree with others who have commented on the these suing investors. An IPO is a risk. The prospectus stated that the company may never show profit. Many analysts did not recommend the investment. But people saw a quick profit on an IPO and went for it. It didn't work out. Time to move on. The investors' gamble on an IPO didn't work this time. Would the same people have even opened their mouthes if the shares shot up to $34 a share. I don't think so. Besides you couldn't even sign up for the IPO unless you passed through the prospectus page. If they didn't read it or couldn't understand it and didn't seek a professional's advice or guidance, who's fault is that? The investors fault that's who.
Posted by jsprusko (2 comments )
Reply Link Flag
Sure it is their own fault but the situation is about the kind of market environment we want to have and the effects this would have on future investments and IPOs. If investors don't feel that they are being treated fairly, well, say good bye to any financial markets as everyone moves to a better regulatory environment.
Posted by robertrowshan (29 comments )
Reply Link Flag
 

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