ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Sunday, June 04, 2006

Vonage IPO

I'm blogging on this only because I am a Vonage customer and was invited to participate in the IPO. This story in Saturday's WSJ is disturbing:

Vonage Faces Lawsuit Over IPO
By SHAWN YOUNG
June 3, 2006 9:00 p.m.

Vonage Holdings Corp., is the target of a class action lawsuit filed Friday that claims the Internet phone company improperly steered consumers toward investing in its $531 million initial public offering, according to a statement issued by the law firm Motley Rice LLC.

Shares of the Holmdel, N.J., Internet phone startup have plunged more than 30% since the much-anticipated IPO on May 24. The company, which has been a high-profile hit with consumers, took the unusual step of setting aside 4.2 million IPO shares priced at $17 for customers. Some disgruntled investors who have said the IPO process was flawed and the stock was overpriced they plan to withhold payment for the stock, which was at $11.98 in 4 p.m. New York Stock Exchange composite trading Friday.

The suit, filed in U.S. District Court in New Jersey, claims Vonage tried to compensate for a lack of interest among sophisticated institutional investors who usually dominate IPO's by selling shares to consumers, according to the statement. The suit contends that Vonage and its underwriters 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 statement said. Vonage, "had no such reasonable basis in this case and improperly crammed investors into the Vonage IPO regardless of their suitability," according to the statement.

Company insiders "who had invested hundreds of millions of dollars of their personal funds in the Company, were losing money," the statement said. "Desperate to execute an exit strategy for themselves, (they) embarked on an illegal course of conduct to sell shares of the company in a public market."

Officials at Vonage and Motley Rice could not immediately be reached for comment.

I'm sorry, but I was invited to invest in the IPO and there was substantial warnings to potential participants about the unprofitable nature of Vonage's business. In addition to reading the actual prospectus (which a majority of customers would be unlikely to do - simply because all those numbers are sooo tricky!), potential investors had to go through 10 to 20 questions online before they could even identify the number of shares that they would be interested in buying. If Vonage didn't offer its customers with the opportunity to invest in the IPO, no doubt the Vonage user forums would be filled with screeds about Vonage trying to keep its customers out of the reindeer games.

And for those that are not current Vonage subscribers, I would recommend Packet8 instead. While their website and user interface is definitely not as good as Vonage, the VOIP quality is just as good (if not better) than Vonage. The only possible reason that one might consider Vonage over Packet8 is the free calls to Europe. If you don't have a need for that, go Packet8.

Your Co-Conspirator,
ARC: St Wendeler