Vonage Vows to Pursue Customers Who Renege on IPO

kamikaze-Tech writes "As its shares continued to sink following its initial public offering last week, Vonage Holdings Corp. (VG) said it plans to hold Customers who promised to buy IPO shares to their pledges. In a WSJ article posted in the Vonage Forums; a Vonage spokeswoman said Wednesday the company will pursue payment from customers who renege on their agreements to pay for the botched IPO shares. Shares of Vonage, which offers Internet-based phone service, immediately plunged from the $17 IPO price, and they closed Wednesday at $12.02 in 4 p.m. "If they don't pay, we will reserve our right to pursue payment," said Brooke Schulz. She added that speculation that the company intends to buy shares back from disappointed investors are false. "They are taking a risk if they choose not to pay," she said."

Comments

They might need to delay gratification

[rbanzai]

I hope the bigwigs at Vonage held off on those Ferraris they were planning to buy... :D

Re:They might need to delay gratification

[OlivierB]

Well they may already have. IPO money goes to the company issuing its shares. Once they are on the Nasdaq or NYSE they are on the secondary market; i.e. the shares you buy or sell are traded with the company itself but with some other chap who has the exact opposite view to yours.
Hence those who had their Vonage stock converted in ordinary public shares already sold at $17, if they got ahold of these at lower price (or free as stock options) than they probably already have the Ferrari dealer on their friends list.

Re:They might need to delay gratification

[Momoru]

How is the parent a troll? What he said is exactly correct... half the point of IPO's is to make insiders some instant cash.

Re:They might need to delay gratification

[Hercynium]

If the insiders are corrupt and/or simply don't care about the business they've likely invested significant amounts of time and money into, then, yes, you may be right.

But the point of an IPO is to raise capital that can be used to grow a company through a mechanism that allows those investors to recieve a return based on future growth and/or interest in the company. (assuming said growth/interest happens)

As all investments carry a degree of risk, the situation of Vonage's shareholders is by no means uncommon, unusual, or even wrong.

Furthermore - just because the stock market does not currently seem to believe that an investment in Vonage has a high likelihood of turning a profit does not mean it won't happen. If Vonage uses this new capital wisely, and is capable of competing profitably in this industry, the investment may still pay off, perhaps very well, even.

Blah. I just fed a troll. Eat hearty.

Re:They might need to delay gratification

[corbettw]

Hence those who had their Vonage stock converted in ordinary public shares already sold at $17, if they got ahold of these at lower price (or free as stock options) than they probably already have the Ferrari dealer on their friends list.

That's assuming said insiders are not under a black out. Usually, there's a black out period of six months following the IPO, during which no insiders may sell their shares (some provisions allow them buy additional ones, which may then be sold, but they can't sell any options or shares they originally owned).

Now, the VCs who backed the company are under no such restrictions, and in fact they make pretty much all of their money at the IPO. In fact, it usually doesn't matter whether the stock rises or falls at the IPO, the VCs make their money either by underwriting the IPO itself, or by selling their shares to institutional investors just before the shares hit the Over-The-Counter (OTC) market (NASDAQ, NYSE, AMEX, etc).

Why, yes, I do have a Series 7, why do you ask?

Re:They might need to delay gratification

[OlivierB]

Hate to nitpick but NYSE, NASDAQ and all aren't OTC markets, they are exactly the opposite; they are exchanges.
OTC markets are for trades between two parties with no other party involved.

Yes I have a CFA (level 1 only though), why do you ask? :-)

Re:They might need to delay gratification

[SageMusings]

By the way, Did ESR ever make any money from the VA IPO or was all that money essentially gone after 6 months?

I remember reading his message saying he was wealthy and then heard noting else about the matter.

Re:They might need to delay gratification

[corbettw]

D'oh!

Why, no I'm not perfect, why do you ask? ;)

Let's piss off investors and potential shareholder

[Enderandrew]

Let's piss off investors and potential shareholders. Better yet, while we're at it, can we get some bad press and announce to the rest of the world that everyone wants to back away from our stock?

People love investing a pariah stock that reeks of desperation.

What?

[Don_dumb]

I have read TFA, but I still dont understand.

Does this mean that people have promised to buy shares at an agreed price, but because the price has already dropped they will not actually buy those shares?
If so, how did they 'promise', if they have done so in writing, then surely Vonage can demand they do buy those shares at that price?

Or is this a case of a company mucking up a floatation, realising that it is now massively in debt to external creditors and is trying to reclaim that money by threatening people?

Can someone please clear this up for me?

Re:What?

[Enderandrew]

I'm no expert, but when a company goes public, they have an IPO, or Initial Public Offering. There is a period of a few months when planning the IPO that the stock isn't actually being traded, while it is common knowledge however that an IPO is being planned.

People may have promised to jump on the initial bandwagon for the IPO, however, no one knows what price the stock will open at. Google is the only company that effectively wrestled the market and determined their own opening stock price, which the SEC wasn't too happy about.

My guess is that the IPO price was higher than people expected, so they didn't buy the stock like they intended to, and then the stock plummeted quickly there after.

Re:What?

[Don_dumb]

So, in summary, you think that Vonage had grossly miscalculated, its initial value and therefore the IPO?
However, did people make a commitment to buy those shares? If they did, then regardless of how badly Vonage floated itself it has every right to hold them to their commitment, doesn't it?

Re:What?

[spottedkangaroo]

determined their own opening stock price, which the SEC wasn't too happy about.

I don't think it was the sec that had the problem. It was the investment bankers that couldn't make the billion dollars with their investment banker cronies in the usual fasion. The sec is there to protect us not them -- though it usually doesn't really bother...

Re:What?

[Marsala]

Does this mean that people have promised to buy shares at an agreed price, but because the price has already dropped they will not actually buy those shares?

Basically, yes. Part of the registration for participation in Vonage's IPO was that you agreed to purchase a set amount of shares at $17. Now that the price is less than $17, it'd cost them money to fulfill this agreement, so they (understandably) want out of it.

If so, how did they 'promise', if they have done so in writing, then surely Vonage can demand they do buy those shares at that price?

Basically, Vonage has got their consent to the online form and the fact that they had to open up a brokerage account to participate as proof that the people entered into the agreement knowingly. There were warnings in the agreement about this situation happening, but most folks probably assumed that was just boilerplate (nevermind the fact that there's a reason that boilerplate is included in the first place).

Or is this a case of a company mucking up a floatation, realising that it is now massively in debt to external creditors and is trying to reclaim that money by threatening people?

I don't know if it's so much that Vonage is in debt as it is that the first sale of its stock during the IPO is how the company raises money from the IPO. Vonage's standpoint here is "You promised to give us $500 a week ago and we're going to hold you to that promise even though you were expecting to make $600 back and now instead will only be able to make $300 back. The $200 loss is your problem, not ours."

A class act would forgive the customers and offer to either release them from the agreement or offer them a chance to change the terms to something that won't cost them money. Aside from being a decent thing to do and aside from being a good way to prevent a bunch of customers from churning over this, it also would make the company look less desperate and maybe help stop the downward spiral the stock price is currently in.

Re:What?

[edxwelch]

The underwriter company that does the IPO guarantees that there will be buyers at the agreed price. Usually they are big clients of the underwriter and they make a pile of money on the IPO, becuase normally a IPO stock shoots up and they in at a price that the normal investors can't buy.
In this case the IPO actually went down, so it looks like these same investors want it both ways, to make piles of money when an IPO is sucessful and take no risk when a IPO tanks.

Re:What?

[Stone Pony]

"A class act would forgive the customers and offer to either release them from the agreement or offer them a chance to change the terms to something that won't cost them money"

Alternatively, you could argue that a class act would stop bleating about how his "can't miss" money-making proposition didn't work out the way he'd hoped and pony up the cash that he'd freely agreed to pay.

Just a thought. I don't really care one way or the other, but it would be nice to see someone standing up for the notion of personal responsibility.

Re:What?

[NormalVisual]

Big time. I received the same offer all the other customers did and after looking at it carefully, I decided not to participate because I don't see Vonage having long-term (5-10 years) viability. Vonage was *very clear* in their signup process about the risks involved, and anyone that chooses to buy stock in a publicly owned company should already be aware of such risks. I have not the least bit of sympathy for anyone who thought they were going to get rich quick and instead finds themselves in the hole five bucks per share. Guess what,

sometimes it happens to Warren Buffett too, but you don't see him whining about it.

The unfortunate thing is that no matter what Vonage does, they're screwed. If they try to (rightly, IMHO) hold these people to their commitments, it's a PR disaster in the making, and if they forgive the pledges, it's going to cost them real money, which isn't fair to the company and by extension those people who *did* fulfill their obligation.

Re:What?

[f1055man]

"The sec is there to protect us not them" No, the sec is there to protect the market not us or them. The purpose of the sec is maintain the public's confidence in the securities market. Most of the time that means looking out for investors, but not all the time.

Re:What?

[plague3106]

Basically, Vonage has got their consent to the online form and the fact that they had to open up a brokerage account to participate as proof that the people entered into the agreement knowingly.

This may be true, but I thought one of the basic tenents of contract law was that the contract must be mutually benefital. I fail to see how paying $17 for a $12 stock is benefiting the investor. I would think (IANAL) that since there's only a one sided benefit, the people that backed out do have a legal reason to do so.

Re:What?

[repsychler]

This may be true, but I thought one of the basic tenents of contract law was that the contract must be mutually benefital.
They agreed to pay $17 for each share of stock, which at the IPO had a value of $17. It's not their fault the price took a dive. Just because your new car loses a lot of value as soon as you drive off with it, the amount you owe the bank for it doesn't change.

Re:What?

[goaliemn]

an IPO is a gamble. Try walking into a casino office.. "I put $500 into your slot machine and was expecting $600. I now have $200. Please refund me the difference."

All over the registration site for the IPO it said you may lose your money. This IPO didn't work out as well as some expected. Any time you buy into an IPO, you shouldn't expect the 400% return on your investment some have seen. You have to buy and hold. Wait a year.. see what happens. You should only buy stock with money you could afford to burn, or lose in Vegas.

Re:What?

[Vengie]

YANAL. You are also wrong. The mutually beneficial requirement is ex ante, not ex post. If you don't know what ex ante and ex post mean in this context, please don't post about these things anymore. (Then buy a copy of Barnett's Contracts or Williston's Contracts Treatise and actually learn something.)

If you buy wheat futures and the price of wheat goes down, you're screwed.

Even if the US Government signs the Treaty of Ghent and the other guy doesn't tell you about it, you're screwed! [Laidlaw v. Organ, 15 U.S. 178 (1817)]

Re:What?

[nelsonal]

Your class act will soon be busted for securities law vilations and could share a cell with Kenny-Boy (that would be a really easy conviction (since the evidence was broadcast on national tv, too). You can't undo the losses of some shareholders, unless you undo the losses of all shareholders.

Re:What?

[plague3106]

Latin for before and after. Although I wasn't aware that contracts only had to be mutually benefital beforehand, not after.

If you don't mind, what is the rational behind that? I have two examples from my own life.

I signed a lease and moved into an apartment; a few months after I moved in, I had to find a new job which required me to relocate. I told the landlord I was leaving, and at first they said I'd still have to pay rent, even if I wasn't living there. She then compared it to leasing a car. I responded that if I didn't pay the lease on the car, I'd lose the car, and that I'm willing to lose the apartment. IN the end, she ended up accepting a lump some ofa few months rent to release me. To me it seems logical that if I'm not living in the apartment (and thus not benefiting from any rent she expected me to pay) than I simply lose the apartment.

Along a similar vain; a contract with my cell phone company at the same time. I told them I'd like to cancel, because I moved and they didn't offer coverage in the new area. They released me without question or the standard early termination fee. From what you've said, it sounds like they could have forced the fee.

Re:What?

[Vengie]

Landlord-tenant law is very specific -- landlords have a duty to mitigate in residential settings. This is because modern property law has started to merge with contract law in the realm of leases. Depending on your jurisdiction, your landlord is probably obligated to put in a "good faith" effort to re-rent the apartment, and can charge you the reasonable costs of doing so. In a residential lease, there is no jurisdiction where your landlord can just do nothing and sit on an empty apartment and charge you. Your landlord screwed you a bit.

Re: Your phone company. They could have forced the fee -- it would have been upheld as reasonable "liquidated damages." HOWEVER -- just because a company has a right to do something doesn't mean they have to. Gossip is the best sanction -- your cell phone company was smart. You probably think highly of them and will most likely recommend them to friends, and if they do expand into your area, would you use them again?

The rationale behind all this is that in a capitalist system, part of the nature of the beast is some people make deals that turn out to be bad. I.e. I promise to buy 1000 bushels of wheat at a price, and the price goes up or down. If the price goes up, the seller would rather not sell to me. If the price goes down, I'd rather not buy from the seller. (We'd both rather get the market price.) If people were allowed to just "get out" of these situations with no penalty, there'd be no stability in the business world at all. (Every time you misestimated costs, etc you'd just breach your contract) The other problem is this: If i'm the guy who promised to buy at a certain price and the price went UP, I want to force the seller to sell to me. Likewise, If i'm the guy who promised to sell at a certain price and the goes down, I want to force the buyer to take delivery. The reason contracts have to be reasonable ex-ante is because there is always a "losing" side ex-post -- and from the "losing" side, you can always say "I'd never agree to that deal where I lose money!" [Where the winning side always says the opposite.] Does this help as to why reasonableness is judged ex-ante?

Re:What?

[plague3106]

I appreciate your clear explainations.

I thought I was being screwed by the management company. But I was worried about my credit rating and just wanted it done with. I don't suppose that I could sue for some of the money back? Do you happen to work near Willow Grove PA? Personally I wouldn't care if a lawyer took it and I never got a dime; just would be satisifying to screw them back.

Yes, I would recommend the cell phone company (Cingular). I'd sign up with them in a second too, if they got coverage in my area. But from what they told me, that will never happen, as they have an agreement with another carrier (who I never even knew sold phones in my area) not to come in there.

Yes, you explaination makes sense re ex-ante and ex-post. for me though, logically, buying something that loses value and promising to buy something (which loses value before the sale is complete) are different beasts. I totally agree that if i buy something and it loses value, oh well. But if I haven't yet purchased it, and it loses value, then I think I should be able to back out. You choose stocks, but what about buying a house? We are all set to actually do the purchase, but it burns down. I shouldn't be forced to follow through. Of course I realize that there are probably a whole other, different, set of rules for properties and such.

News for MBAs

[Anonymous Coward]

Stuff that's Boring.

Sued the customers, now sue the owners

[syousef]

This is actually quite funny. I thought it was insane that the MPAA and RIAA were so willing to sue their own customers if they didn't do everything legitimately but this is new: Sue your owners. Now let's get Metallica involved and we should see the comedy skits and cartoons roll across our web pages - it'll be even better than the Napster thing.

Can't wait till a company gets so desperate it sues itself. (I bet it's already happened and I get lots of links).

Re:Sued the customers, now sue the owners

[gowen]

Re: vonage: there's nothing weird about sueing someone who breaches a contract (even a verbal contract) with you.
Why would it matter that the contract is about share deals, or anything else?
Can you imagine how the prospective buyers would react if the shares had shot up, and Vonage management had said that they'd decided to sell them at the higher price?
If you want to become a stock market speculators, you have to learn to cope with the fact your going to be wrong sometimes, and suck up the loss you take.

Re:Sued the customers, now sue the owners

[Freaky Spook]

Now let's get Metallica involved and we should see the comedy skits and cartoons roll across our web page

Metallica probably wouldn't be interested but im pretty sure SCO are ;)

Re:Sued the customers, now sue the owners

[Don_dumb]

Can't wait till a company gets so desperate it sues itself. (I bet it's already happened and I get lots of links).

It just so happened three years ago, that Fox News attempted to sue the makers of the Simpsons - http://washingtontimes.com/entertainment/20031029- 091743-7849r.htm, both are of course part of the same company.
It just goes to show that too many suits 'Sue first, think later'.

Re:Sued the customers, now sue the owners

[FidelCatsro]

Mettalica probably don't own any shares in anything , they prefer to sell out

Re:Sued the customers, now sue the owners

[Anonymous Coward]

lol

Re:Sued the customers, now sue the owners

[strider44]

Sorry mate but that was a joke by Matt Groening. He only said it in passing and it went around the world before he had a chance to say "just kidding".

Re:Sued the customers, now sue the owners

[nodwick]

Re: vonage: there's nothing weird about sueing someone who breaches a contract (even a verbal contract) with you. Why would it matter that the contract is about share deals, or anything else?

Can you imagine how the prospective buyers would react if the shares had shot up, and Vonage management had said that they'd decided to sell them at the higher price?

If you want to become a stock market speculators, you have to learn to cope with the fact your going to be wrong sometimes, and suck up the loss you take.

A lot of the complaints have centered around the really poor execution of the sale. Shares were supposed to be issued to the buyers at the IPO price immediately, so that buyers could then trade them on the first day. Instead, the underwriters screwed up their purchasing system so that buyers couldn't put stop-loss orders or sell their shares on the way down and limit their losses; instead, the computer system refused to accept sells and forced them to sit there watching the share price fall. Even worse, some buyers were initially told they weren't allocated shares, only to find out at the end of that day that they actually were given shares. (To extend your analogy, how would you feel about initially being told you wouldn't get any shares, then the price tanked, and THEN you were told that whoops, we made a mistake, and we're going to be selling you shares at a 12% markup to the current market price anyhow?)

Note that IPO shares are typically priced slightly below what the company thinks the fair value is, in order to give the initial purchasers a good deal. The more paranoid (cynical?) have suggested that Vonage deliberately overpriced its shares and used its own customers to prop up its IPO price. Given that customer relations for the company weren't stellar to begin with (too many horror stories dealing with their staff), this is going to generate a lot more negative PR with both their current customer base and potential future customers.

Re:Sued the customers, now sue the owners

[briancarnell]

"It just so happened three years ago, that Fox News attempted to sue the makers of the Simpsons..."

It just so happens that was a clever hoax started by Matt Groening who was pulling a reporter's leg.

Re:Sued the customers, now sue the owners

[gowen]

Well, that's fair enough.

If Vonage screwed up, they screwed up, and they'll lose their lawsuits. But that doesn't invalidate my initial point -- in the absence of various irregularities, a breach of contract suit would be normal common practice. Sorting out this sort of mess, and finding who is to blame is something that courts (with the SEC) are good for.

Re:Sued the customers, now sue the owners

[bitt3n]

funny you should mention.. I agreed to buy 51% of the issued stock, but reneged. So if the Vonage execs sue me and win, my first act will be to FIRE THEM ALL. their call. HA.

Re:Sued the customers, now sue the owners

[nelsonal]

It's always wise to recall Groucho Marx when dealing with IPOs, "I don't want to be a member of any club that will take me." When average investors (or brand new investors) are being allocated IPO shares it's a good idea to run away from the deal.

Re:Sued the customers, now sue the owners

[Jeff DeMaagd]

What is legal doesn't make business sense.

The point is, even if there is a legal right to sue, does it make sense to do it? Do you sue your customers and prospective owners, such that they can vote you off the board, or dump the shares on the open market and sign up to Packet8 or other services? That sounds retarded. I don't care if it was a breach of contract, it is dumb to enforce this contract. That is, if there ever was a contract, the press release isn't clear.

Given that the stock price dropped quickly, I think it shows that the IPO price was excessive in the first place.

Re:Sued the customers, now sue the owners

[Anonymous Coward]

Even worse, some buyers were initially told they weren't allocated shares, only to find out at the end of that day that they actually were given shares.

Whatcha wanna bet that they would not have received their shares if the price had gone up instead of down?

I still can't believe that regular schmoes were so gullible as to believe they would get the upper hand over wallstreet in this IPO.. It is also amusing that with all of the risk warnings, etc, those people are now pissing and moaning and looking for an out.

As far as the trading website not working well.. That's a tough break. But anyone who reads the ToS from their broker knows that the ability to trade via the web is never guaranteed.

There's one born every minute!

Re:Sued the customers, now sue the owners

[pete6677]

Would you want to be the one going to court with only a verbal contract. I guarantee you'll lose. Unless the other side has no case whatsoever you will not win with only a verbal contract. In this case, the whole deal is questionable, given some of the irregular circumstances involved.

Vonage will likely send out some legal letters to see who they can scare into paying, but if they actually try to take legal action to collect, they will find themselves on the other end of a lawsuit from all the pissed off customers. It sounds like they may have broken some securities laws here.

Re:Sued the customers, now sue the owners

[plague3106]

Re: vonage: there's nothing weird about sueing someone who breaches a contract (even a verbal contract) with you.

IANAL, but I also think that contract law dicates that said contract must be mutually benefital. I don't see any benefit for those that backed out of the purchase. I also fail to see how not buying something you agreed to buy would be illegal. You choose not to pay, you don't get the item you promised to buy.

Anyone know what happens if you make a verbal (or written agreement) to back out of a car sale? Does the car dealer have any recourse?

Re:Sued the customers, now sue the owners

[Keybounce]

When average investors (or brand new investors) are being allocated IPO shares it's a good idea to run away from the deal.

Redhat, Google.

I was one of those "I tried to purchase RedHat, but that bleepy company stopped me" people. (Sadly, I was stopped at step one, and had no paper trail at all. Hence, no recovery suit.)

Re:Sued the customers, now sue the owners

[Keybounce]

Can't wait till a company gets so desperate it sues itself. (I bet it's already happened and I get lots of links).

Does the whole MP3.com situation count? (Sued by IP company X; X winds up owning the company (now worth much less); X turns around and sues the lawers that told MP3.com that this was a viable idea in the first place).

[sigh]. So what happens when the next generation of people in charge are people who have been "burned" by the MPAA/RIAA/etc groups and actually start legislating in favor of the people?

I recall reading about a study that indicated that "successful" companies that operated purely for short-term gain tended to last about 40 years, while those that operated from employee and customer quality/service operated for about 100 years. No link, sadly (watch someone reply with link). Granted, there's a time bias -- what a company could do 100 years ago is very different than what a company could do 40 years ago -- as well as the "infant death" concern of most businesses -- but if this is really true, what does it take to replace the big company, "Federal Government, Inc" now that it's well past 40?

Re:Sued the customers, now sue the owners

[Vengie]

First, see my earlier post. Laidlaw v Organ 15 U.S. 178 (1817). You purchase wheat futures, the price of wheat goes down, you get screwed. The US signs the treaty of ghent, you also get screwed.

Mutually beneficial is ex ante vs ex post. Ex ante, there was no way of knowing: you made a gamble and lost.
Finally, your "backing out of the car sale" is: You lose.

Neri v. Retail Marine: If you're backing out of a car purchase the car dealership will get the expected profits without having to mitigate damages since for the purposes of "selling cars" they have a virtually unlimited supply. (Under the UCC, this is probably the case as well)

Written vs. Oral: Price of the car, length of time between agreement/sale and any estoppel claims will determine if you can "get out" via the Statute of Frauds. Most likely not.

Re:Sued the customers, now sue the owners

[gsfprez]

i got half-way thru the process, and then, the website basically chocked up spew - bad pages, links to nowhwere, "this site is too busy" messages, and pages that didn't display properly on my Mac. (these were NOT complicated web sites, and its hardly my fault that i don't have Internet Explorer...

I wasn't able to make it to the "setup online share account" step - there was no link for me. I tried for like an hour - and eventually just gave up.

i certainly hope that they don't try to come after me - or actually, i don't care. When they say "why didn't you pay for the shares" the answer is easy - you didn't give me any way to complete the transaction, therefore, you didn't actually offer me anything. If you want to offer me something, you have to give me a line to sign.

Now, i believe i singed on the line that said "i want to do this" but that's when the next step came up...and i couldn't get anywhere. But honestly, it had taken me an hour to get to that point - becuase i had to keep reloading pages to get whatever website to kick out semi-useful webpages.

oh well... if they want to come after me for $1700, that's fine - they can kiss my ass and talk to my lawyer.

Re:Sued the customers, now sue the owners

[gd23ka]

Part of the way to become rich is not to give away money because you feel morally obligated. If I had been stupid enough to signup for Vonage stock then I would still wait and see what they do before actually buying. By the looks of it they're going under. If they go under then a bunch of threats are most likely all we'll ever hear of this again. On the off chance that they do survive and I see they do have enough life in them to kick me hard enough and are getting set to do it, then and _only then_ will I pay.

You can sink your moral dross in that dark and murky orifice where Vonage will soon connect to. If the stock had soared and Vonage turned around and sold hat a higher price then _if_ it is profitable for me to kick their face with my left boot and their balls with my right, then I'd do that as well.

I don't like you attitude gowen.

Re:Sued the customers, now sue the owners

[nelsonal]

I don't recall the specifics of Red Hat's IPO, I thought the "general public" portion of the IPO was reserved for code contributors (which would limit them to something like insiders). In the case of Google, they were essentially making a market in the stock early so it wasn't really an IPO in the traditional sense. I should have been clearer in stating that if me as an average dumb fella off the street is being sold the stock (not in an auction and with no special ties to the company) it's probably a stinker. Normally IPOs are intentionally underpriced and distributed reward good customers of the underwriter, if they aren't following that practice than its likely that the shares aren't underpriced as much as one thinks they are.

Re:Sued the customers, now sue the owners

[plague3106]

Sorry if I'm being dense here; i've had to make a long car trip due to a family emergency.

You say on the backing out of a car is a loser; but I'm not sure what you mean by the 'dealership will get the expected profits...' Does that mean that even if you back out he can reasonablly expect to make a profit selling the car to someone else? Or do you mean he can force you to live up to your agreement? (Although by 'backing out' I meant that they buyer had not yet given any form of payment or signed anything. Would it make a difference if papers were signed, but the buyer hasn't taken possion of the car and has not yet given any money for the purchase?)

I responded to another post you made in reply to me (about an apartment and cell phone). Would the complex owner reasonablly be able to rent the apartment again, and so if I moved out they actually didn't have any recourse?

Sorry for all the questions; I do have a curiosity about law, but many times don't even know where to begin looking for the relevent laws (never mind case law). I'm not looking for free legal advice (since my situations are in the past and already resolved, and I staying put for a long while), so I hope you don't mind the questions. I apppreciate any light you can give on the subject.

Its nice to finally have someone with a real knowledge of law here, instead of us 'guessers.'

Vonage IPO

[JWSmythe]

I hope they don't come after me. I went through their signup, and stopped when I saw the price and the mininum number of shares to buy. I was willing to throw a few bucks into it, but not anywhere near what they were asking for. Stocks are a gamble, and I have my limits. This time, it looks like I made the right choice.

Re:Vonage IPO

[Mr. Underbridge]

I hope they don't come after me. I went through their signup, and stopped when I saw the price and the mininum number of shares to buy. I was willing to throw a few bucks into it, but not anywhere near what they were asking for. Stocks are a gamble, and I have my limits. This time, it looks like I made the right choice.

They can't come after you if you didn't actually follow through on the order. Deciding not to do it *beforehand* is OK - *after the fact* not so much.

On another note, to all the people who actually *did* back out of your commitments, I have two things to say:

1) at the point where they opened up the IPO to (basically) the public, you should have known the stock was a dog. Companies use access to IPOs as perks to financial institutions in return for favors, like reduced rates on loans. If they open the IPO up to regular people, run.

2) If you can't stand risk in investing, stay in the kiddie pool. Enjoy the 1.5% return on your savings account.

Re:Vonage IPO

[spike2131]

1) Yes, opening the IPO to the public (or customers, in this case) is a red flag... but keep in mind that the Google IPO was also open to the public, and look what happened there.

2) If you are getting 1.5% on your savings account, you need to get a better savings account. On line banks are offering over 4% these days.

Also, the investment bankers who hung this IPO out to dry ought to be shot.

Re:Vonage IPO

[rjamestaylor]

I went through their signup, and stopped when I saw the price and the mininum number of shares to buy.

Sounds like "Whoo-hoo, Hoo-hoo-hoo" Vonage offered its shares through "pay first then we tell you the details" Priceline.com.

Sigh. This smells so 1990's.

At $5/per share and rising, the likelihood is increasing that Vonage will attack its non-paying customers to get low-hanging fruit. Good luck!

Re:Vonage IPO

[mosch]

I'm quite glad I didn't follow your advice during the RHAT and LNUX IPOs.

Re:Vonage IPO

[JPriest]

I am in the same boat you are.

I clicked through the first few pages to check it out and opted out after I read the details. Since we decided not to commit to the contract after reading it rather than going through with it and reneging on the purchase later I believe we are both in the clear.

Re:Vonage IPO

[rougue04]

Im a vonage customer and i've had no problems with the service. I was looking into throwing some money into the ipo but they were talking about an ipo of upto somewhere around $50...im still confused on what they were offering but thats my problem. The thing that got me was that the site didnt even work when i went to sign up with a broker. Now that im hearing that it dropped to 12.02 kinda glad i didnt invest...even though, im thinking that the price will jump up to mid 30s....you can quote me on that ;)

Re:Vonage IPO

[Mr. Underbridge]

If you got your money in at the same time as preferred investors, I'm definitely asking how. Were you' *part* of the IPO, or did you buy shares immediately *after* the IPO? There's quite a difference there. Because Red Hat's IPO was definitely not public.

Re:Vonage IPO

[mosch]

Getting into the preferred group wasn't a huge challenge. If they could find your e-mail address anywhere in their source code you got an invite. I think you also got one if they had your name on file for pretty much any other reason as well.

I actually got invited in at two different e-mail addresses, so I'm sure that half the world did as well.

a small mistake at the start?

[EsonLinji]

Aren't stock prices meant to go up after an IPO for at least a few days so the investment brokers can offload the shares at a profit before the stock drops? This seems to have been really poorly organised.

As to the practicalities, if someones signed a contract saying they'll buy so many shares at a certain price, you can't blame the other party for holding them to it, even if they do look like idiots doing so.

Re:a small mistake at the start?

[Eivind]

It doesn't work like that.

Instead, you sign up people to buy the stock at some fixed, agreed upon price. This price will most of the time turn out to be somewhat lower than what the stock starts trading at -- if not, you'd not manage to sign up people for all the stock.

Now, I don't know why it's done like that, probably just tradition. The logical way to get a correct market-pricing for the stock from the get-go would be to hold an auction, and to give the stock to those willing to pay the most, for the lowest price of those.

For example, if you wanted to IPO with 3 shares, you'd hold an auction, and if the bids where 10,8,7,5,5,4 then the ones bidding 10,8 and 7 get one each, at the price 7. (because that's the highest price you can sell all shares for)

Re:a small mistake at the start?

[Andy_R]

It's done that way for several reasons, including:

It guarantees a certain share value (if all the shares are sold). Rightly or wrongly, lots of investors prefer a guarantee to an auction-dependant price.

It attracts people who invest in IPOs (because they usually go up) but are not interested investing in the particular market sector long term. These people smooth over the problem that while the company might be worth x per share, there isn't necessarily (x times the number of shares for sale) spare cash floating around on day 1 to buy the shares.

Re:a small mistake at the start?

[Acid-Duck]

And what do you think happens when people unload on a stock? All of a sudden there's a huge supply which exceeds the demand. For that reason, people who trade with real-time quotes will immediately lower their offering prices for the shares since they realize someone really wants/needs to unload alot. To make things worst, sometimes ppl will want to unload "at any cost" which is when you can see the price of a share go down sharply. What this means, let's say bid/ask was 16.90/17.00 whoever wants to unload puts in a sell order to unload at "market price" which means it'll start selling at 16.90 and won't stop selling shares at the market price, regardless of what it drops it.

Re:a small mistake at the start?

[Professor_UNIX]

And what do you think happens when people unload on a stock?

You get LNUX shares going from $320 to $4 a share? :-) God, anybody who held onto that worthless VA Software stock has got to be kicking themselves.

Re:a small mistake at the start?

[Anonymous Coward]

I looked at the IPO and then found out thru the article I read that Vonage never made a profit, no one wanted to merge with it, and couldn't supposedly get a bank loan, so Vonage was going to IPO with their customers. The risk to Vonage is that they piss off the customers if the IPO doesn't go well and the customers go to another VOIP provider. After all VOIP is just a black box on your dsl connection.

http://www.clevelandredlightcameras.com/

Re:a small mistake at the start?

[poot_rootbeer]

if someones signed a contract saying they'll buy so many shares at a certain price, you can't blame the other party for holding them to it

Since this is an Initial Public Offering, the contract also specifies WHEN those shares are to be sold. If Vonage was not able to distribute those shares to buyers in a timely fashion, there's a good argument that the entire contract is void.

Let's say I go to a car dealership and sign an agreement to buy a brand new car, with only 5 miles on the odometer, for $25K. But instead of letting me drive off the lot that day, the dealer insists on keeping the car overnight for "preparation". Then they get drunk and drive it around on the freeway all night.

When I arrive the next morning, I discover there's a fresh scratch on the driver side door, and the odometer reading has jumped up to 500 miles. The blue book value of the car is now no more than $20K -- am I still obligated to buy the car for the $25K I agreed to yesterday, even though the value of the car has decreased since I entered into the agreement?

Re:a small mistake at the start?

[Vengie]

Your comparison to a durable good is a bad analogy and just wrong. A better comparison is to Wheat futures or Tobacco futures. If you agree (in writing) to take delivery of 1000 bushels of wheat tomorrow at 50 cents a bushel and tomorrow morning the price of wheat drops to 10 cents a bushel, you can either a) buy all 1000 bushels of my wheat at 50 cents a bushel, b) have the court order you to pay me 40 * 1000 cents (the difference between the price you agreed to and the market price). This is black letter contract law. You lose. Period. Any US jurisdiction.

For one of the earliest examples of this, look at Laidlaw v Organ 15 U.S. 178 (1817) in which the price differential was caused by the US signing the treaty of Ghent -- which one party knew about and the other did not. The Supreme Court's ruling? Tough.

Another dot com failure...

[Anonymous Coward]

I hope everyone gets to keep their Herman Miller chairs!!!

stupid bitch has it backwards

[Mean Ass Troll]

boohoohoo boohoohoo

not paying for shitty, artificailly inflated ipo shares that went down as soon as the underwriter pulled the rug from below is not taking a risk. it is taking an educated chance to prevent getting ripped off. pursuing payment is truly a chance for vonage, as they risk potential prison for allegations that will probably surface in numerous countersuits if they try and "persue payment". who does this pr shill think she is scaring/kidding?

Re:stupid bitch has it backwards

[Anonymous Coward]

Almost right... Boo Hoo, Boo Hoo Hoo! Boo Hoo, Boo Hoo Hoo!

Joe Average Customer

[Anonymous Coward]

So take Joe Customer who signed up for 200 shares and was allocated 100.

Purchase price: 1,700.00
Current Value: 1,200.00
Loss Customer: 500.00

Vonage Phone Service Bill: $ 324.00 (pre IPO)
Vonage Phone Service Bill: $ 0.00 (post IPO)
Loss to Vonage: $ 324.00
5 years loss to Vonage: $1,620.00

Joe Average Customer becomes Joe Pissed off ex-customer.

Other way around...

[tekrat]

This is new... Usually it's the shareholders that sue the company. Now the company sues the (potential) shareholders? What's next? Buy my stock or I'll sue you? I'm aghast at these companies that think that they are entitled to money, regardless of the situation. The RIAA and the MPAA are the tip of the iceberg it seems, by suing their customer base.

Pretty soon companies will threaten consumers in televised ads "Buy our beer or we'll sue you!"... I predict GM will actually be first.. "Buy our overpriced SUVs or we'll sue you!" Isn't it Ford however that now makes their employees buy Fords if they want to park in the company parking lot?

Is there ANY tactic a company won't stoop to in the interest of profit? Like politicians, the American public grows quickly tired of being abused and lied to, it's only a matter of time before there's a huge backlash to all this insanity.

TTYL
Brian C.

Re:Other way around...

[Anonymous Coward]

They can't sue anyone (well, they can, but not successfuly). That's the whole point for having clearing corporations, so folks don't back out of deals. It's also the primary reason to have Futures or Forward agreements. I doubt folks got those in this case.

In other words, folks who are pestered by that corp can fight'em in court and likely win. In fact, a class action lawsuit on behalf of customers (and possibly shareholders) should sue the corp and management---cause they seem to have clearly robbed "Joe Average".

Is relief in sight?

[tm2b]

I don't care, so long as Vonage stops those freakin' annoying commercials. They're like when a three year old gets a hold of phrase they like and won't stop repeating it. I mean, yeesh. I can be three rooms away from the TV and nearly be irritated out of my skin by those things.

Re:Is relief in sight?

[WilliamSChips]

It's kinda funny seeing the "No Nerds" ads for Vonage on a site called "News for Nerds".

Re:Is relief in sight?

[Anonymous Coward]

Right on! I, too, hate their commercials and hope this is the end of them.

OMG Vonage. What next?

[Anonymous Coward]

Lame.Lame.Lame. Someone should hack vonage.com and replace it with this: TubGull

Re:OMG Vonage. What next?

[Anonymous Coward]

HAHAHAH! Tubgull owns you.

Re:OMG Vonage. What next?

[bobamu]

I know I'm supposed to be sickened by that.

but hahahaha

Vonage *may* be justified in doing this..

[leeum]

I originally thought this was a bit of extremely bad PR at first. When thinking about this further, I do believe that Vonage might have a justification for insisting payment.

I couldn't find any information about the IPO price-setting process in the United States but I am assuming (call it an educated guess) that, at some point prior to the IPO, Vonage must have announced to all participants in the IPO a confirmed price per share: in this case, $ 17 per share. It would then make sense to me that Vonage would be obliged to give participants the option of dropping out, or confirming that they are still interested in purchasing the shares.

Assuming all the above is true, I would think that, at the date of the IPO itself, purchases are contractually obliged to purchase those shares at $ 17 per share and pay up. The article seems to imply that the investors are now balking on their contractual obligation and refusing to pay up given that price per share has fallen in subsequent days.

However, I have not been able to find any evidence to suggest that Vonage has been unfair in its IPO process. Of course, as this story pans out, we may actually hear from some of the individuals involved.

I did, however, find an early SEC filing related to this auction, available here.
This filing doesn't seem to give any information about the proposed initial price, but I thought it was interesting that the company did disclose that theirs was a high risk stock, and listed several risk factors that could negatively impact the value of their stock.

Re:Vonage *may* be justified in doing this..

[Anonymous Coward]

Yes, Vonage's position is completely justified in this case. Anyone who bought into the Vonage IPO got exactly what was coming to them. The company was so desperate to sell shares that it actually sent messages to its customers in the days immediately beforehand, practically begging them to take its shares. If that didn't raise red flags for you, then good God, what the hell are you doing in the financial markets at all?

Re:Vonage *may* be justified in doing this..

[Anonymous Coward]

This filing doesn't seem to give any information about the proposed initial price, but I thought it was interesting that the company did disclose that theirs was a high risk stock, and listed several risk factors that could negatively impact the value of their stock.

That's an SEC requirement. So, what they actually said might be interesting (but ought to be obvious to any serious invester considering purchasing shares in the company) it is standard procedure for them to make such disclosures in their filings.

Re:Vonage *may* be justified in doing this..

[ps]

I was part of that IPO as a potential investor. The process was very clear.

*You "read" the prospectus (think EULA "check this box" kind of thing) that warned you extensively about the risk involved. Those risks were very clearly stated.
*You had to read a page on the risks involved, with all of them ending in "and you could lose all the money you invest"
*You created a limited purpose account with a brokerage.
*You were told to read the prospectus again.
*You made a conditional bid in 100 share increments, with the expectation that the price would be between $16-18. You were told that you could drop out at any time prior to the price being set, and that your bid, if accepted, would be binding.
*You were told that the price was about to be set.
*You were told to read the prospectus again.
*The price was set at $17.00
*You were told "The posting of this information and the final terms of the intial public offering constitutes the underwriters' acceptance of your conditional offer to purchase shares of Vonage common stock. Accordingly, you are now obligated to purchase the number of shares you have been allocated, if any."

Having gone through it, I have no doubt that they are on firm legal ground (IANAL). You had to accept (again EULA type) every single step of the way, and every time you logged into the website.

Thank God my bid wasn't accepted!

-ps

Re:Vonage *may* be justified in doing this..

[Tony Hoyle]

The key words are at the end:

"the underwriters' acceptance of your conditional offer to purchase shares"

It's a conditional offer. You can withdraw it.

Re:Vonage *may* be justified in doing this..

[iamdrscience]

No, that means that the underwriters don't have to give you the stock if it's not available (i.e. if by the time you made your bid, all shares had been allocated to other investors. The real key words are right after that: "you are now obligated to purchase the number of shares you have been allocated"

Re:Vonage *may* be justified in doing this..

[adamn]

You can only withdraw the conditional offer until they accept it. IANAL (merely a law student), but from my understanding of contract law, Vonage is on ROCK-SOLID legal ground to go after the people who aren't paying for their IPO allocations. Whether they want to risk the public-relations mess is another question entirely.

Re:Vonage *may* be justified in doing this..

[Vengie]

i keep tossing everyone at 15 U.S. 178 (1817). (Laidlaw v Organ) The number of people chiming their us $0.02 in this discussion with their personal view of contracts theory is astounding. Vonage will win every single time. This is black letter contract law. Technically, the "purchaser" of the stock made the OFFER TO BUY -- and the underwriters made an acceptance. (Think acceptance by silence, massopoust whip company.) Either under unilateral contract theory or otherwise, vonage wins every time. This entire discussion would be relegated to a footnote in a casebook.

What is the problem?

[Super_Z]

[..] it plans to hold Customers who promised to buy IPO shares to their pledges.

What is the problem? When you sign up for shares in an IPO, you sign a contract that commits you to actually buy the shares at the given price. When the stocks are listed, the agreed amount of shares are transferred to your account. At this point in time, you are expected to pay for them. If you don't, its a breach of contract, or simply "embezzlement" as the rest of us would call it.

Re:What is the problem?

[Secrity]

The problem is that the Vonage IPO was not handled in a traditional way with a traditional cast of players. According to TFA, "Vonage took the unusual approach of allowing customers and other people close to the company to reserve shares without putting down any money. They weren't required to pay for the shares until May 30, six days after the May 24 IPO." There are customers who claim that they were not aware that they had actually agreed to purchase any shares as there was no order confirmation process.

The delayed payment arrangement, a web based purchasing system that may not have produced a binding contract, naive investors (who are also Vonage's customers), and the inability of Vonage to forgive the stock purchases; have started a legal and PR nightmare for Vonage.

Re:What is the problem?

[f1055man]

part of the problem seems to be that Vonage didn't actually transfer the shares to their accounts. So the thinking of some of these people is, "you didn't tell me I was getting shares/you wouldn't let me sell them, and now you still want me to pay up?" As I didn't have any money in this, I think this is hilarious. Vonage is going to get sued into the ground on this. It takes monumental incompetence for an IPO to cause a bankruptcy.

Re:Let's piss off investors and potential sharehol

[gowen]

So, if you were a potential investor in Vonage, you'd be happy if they just let people back out of their legal obligations, regardless of any financial damage to the company itself?

You have strange ideas about responsible corporate governance.

Vonage originally offered not to pay

[nodwick]

I submitted a story on this yesterday morning. Vonage went on CNBC Wednesday morning and announced that it "is going to let some of its customers off the hook by buying their unwanted shares." The statement said that "While all avenues are available to us we cannot imagine alienating our customers in that way. If certain . . . customers don't pay we expect to repurchase shares from the underwriters if necessary."

People immediately started pointing out that it is illegal for a compnay to treat different shareholders in the same class differently -- Vonage was only offering to "make whole" (Wall Street speak for "absorb the losses of") investors that hadn't yet paid for their shares; people that had paid were SOL.

The whole IPO has basically been a mess, with snafus both in selling shares to their customers and delivering them. Some Vonage customers that they were led to believe that they "weren't allocated shares in the IPO when in fact they had received the shares. Others investors who purchased shares have complained that technical glitches on a Web site set up for Vonage customers prevented them from executing sales in a timely fashion."

I've had good experiences with the Vonage product as a customer, but there are many, many stories of how poorly Vonage customer service treats their customers. They're very slow in sorting out problems -- it took them 3 months to transfer my land-line phone number, and initially the temporary number they gave me was in a different area code than my city, putting me in a long-distance calling zone relative to my friends. It took hours before they fixed it (they kept claiming it wasn't "technically possible" to give me a new number). Analysts are worried that future propects for the company might not look so good, and that screwing over their own customers in the IPO might be the last straw.

Re:Vonage originally offered not to pay

[unitron]

Is it you, or Vonage, or both, that seem to be confused over the concept that, Victor Kiam notwithstanding, although customers may also be shareholders or potential shareholders, i.e, investors, and vice versa, they are not the same thing.

Customers buy stuff from a company. Investors buy a piece of the company and hope that it has lots of happy customers.

Re:Vonage originally offered not to pay

[Krusty Da Klown]

Heh, nice on the Victor Kiam bit. I remember those commercials.

Re:Vonage originally offered not to pay

[tessaiga]

Is it you, or Vonage, or both, that seem to be confused over the concept that, Victor Kiam notwithstanding, although customers may also be shareholders or potential shareholders, i.e, investors, and vice versa, they are not the same thing.

Actually, you're the one that's confused here. If you're RTFA in the parent post, it would have told you that this whole debacle started when Vonage decided to offer shares of the company to its customers at the IPO price. If you were an existing customer (as I was), you received an email about a month back telling you about the pending IPO and offering to let you buy shares.

Internetoutsider.com has a good outline of the chain of events:

The company reserved about 14% of its IPO shares for its customers. In other circumstances, this might be seen as a perk: Buy the service, get hot stock. In this case, however, at least in the early going, it's proving to be an efficient way to engender widespread customer frustration.

At this writing, Vonage customers who took the company up on its offer have lost 15% of their money. Some of them, presumably, are now selling their stock to non-customers who were savvy or fortunate enough to wait until the stock started trading. Even if the stock recovers from here, Vonage customers will no doubt remember that they could have done better. And if the stock continues tanking...well, then, even Vonage customers who love the VOIP service will feel nothing but bile toward the company.

[...]

Given the difficulty Vonage had generating institutional demand for its IPO (witness the tanking stock), a cynic might suggest that the apparently customer-friendly IPO gesture was actually just a savvy capital-raising move: "Our customers don't know jack about IPO valuations--so let's sell 'em stock!" Or, perhaps, Vonage is just so confident in the future of its company and stock price that it is sure its currently chagrined customer-IPO-buyers will be grateful later.

In any case, if the stock stays in the tank, it will be interesting to see how many customers quit Vonage's service because they have lost money in Vonage's stock.

What kind of agreement?

[Acid-Duck]

I'm not a Vonage customer myself so I must ask: what kind of agreement did Vonage have with their customers? Was it a signed paper agreement or one of those signatures where you type your name on a webpage? If they signed an agreement then yes they're probably in trouble.
Erik

Re:What kind of agreement?

[digitalcaffeine]

My brother-in-law is a Vonage customer and received the info for buying into the IPO. He definitely wasn't interested when he saw the minimum number of shares that had to be purchased. I didn't see the document he received from Vonage, but he said there were a few hoops you had to jump through to get in line to purchase the shares. It isn't like it was very difficult, but not as easy as say "respond to this email and you're in" type of thing.

Re:What kind of agreement?

[bobwoodard]

It was a pretty lengthy process with multiple warnings about losing some or all of your money and just how risky the whole proposition was. It also wasn't a click-click-click accept type of form, they had a mixture of input types that forced you to read the page to see what they were looking for.

Re:Let's piss off investors and potential sharehol

[Andy_R]

This isn't going to piss off investors or potential shareholders, it's good for them.

What's better for investors, Vonage sitting on unsold shares with a paper value of $12.02 each or Vonage having $17 cash in the bank?

The more shares Vonage sells for $17, the more money it makes, and the more valuable it is as company, which should mean the shares go up. Good for investors, good for potential shareholders.

The only people this is bad for are the gamblers who agreed to pay $17 for something that turned out to be worth $12.02.

IPO's and investing

[nuggz]

They bought shares of a company at IPO at a specific price.
They have to pay for those shares they bought at that price.

I think IPO's are generally unsuitable for novice investors.

I would bet the customers not willing to pay were fully expecting quick easy money with no risk.

Those who participate in get rich quick schemes deserve what they get.

Re:IPO's and investing

[tonyray]

I'm betting a lot of them didn't have the money and were expecting to sell their shares ahead of purchasing them. For example, I have $0 in my bank account but I promise to pay $17 for 100,000 shares and they accept my offer. Then the stock goes up to $24 the next day. I offer to sell my contract for $23 per share. Bang, $600,000 in my pocket.

Re:IPO's and investing

[nuggz]

Novice investors shouldn't use such a strategy.
Particularly since IPO's are guaranteed to go up.

Re: IPO's and investing

[Black Parrot]

> They bought shares of a company at IPO at a specific price.
> They have to pay for those shares they bought at that price.

I'm surprised to hear that it wasn't set up so that your money was handed over automatically.

Also, I suspect that the SEC would take a dim view of reneging on IPO commitments.

Underwriters will sue the customers

[rabun_bike]

The customers who bought stock prior to the opening bell on the first day did so at a guaranteed price. They purchased the stock not from Vonage but from the underwriters who financed the IPO deal and brought the Vonage stock to the open NASDAQ market. These underwriters are owed the money for the stock purchased. Vonage is indemnifying the underwriters and paying for all the Vonage stock that customers are refusing to send their money for. The underwriters are the ones that are out money - not Vonage. They are the ones harmed by customers refusing to pay for the IPO they ordered. Vonage has a huge public relations problem on their hands. Don't expect any other companies to do this in the future.

http://blogs.zdnet.com/ip-telephony/?p=1106

Re:Let's piss off investors and potential sharehol

[srleffler]

Not to mention, that these are also customers.

They have a duty to sue

[PurpleWizard]

I don't know the details but if they have contractual claims Vongae have a duty on behalf of their share holders to sue.

If I were a director of Vonage and my boss the shareholders could possibly come after me in some manner for negligence if for example the company now sinks. So not only do I want to avoid exposing myself to being unable to be a director (if it were the UK) for a while, prison or huge payouts to the actual shareholders or sue people who were in breach of contract what would I do.

Gosh that is such a tough quesiton.

Any one else noticed how many slashdots turn into debates on the law?

After having to listen to that HORRID.....

[Anonymous Coward]

After having to listen to that horrid off-tune jingle for WAYYYYY too long, I finally get my just desserts.

Hoo Hoo, Hoo Hoo Hoo indeed.

M.

Ya pays ya money and ya takes ya chances

[karlandtanya]

Or in this case, ya promises to pay ya money.

Don't know the details of the contract, and the "article" is a blog entry. Ooh, sorry. It's a "forum" not a blog. Copied from the wsj.
Has any competent legal professional actually looked at this situation?
Vonage's position seems to be that these people signed a contract and they're bound by it.

The justification for not paying I'm seeing in the forum is "F--- Vonage. They suck. I'm not gonna pay. Sue me!"
Folks, if that's the best the investors can come up with, it seems that they don't have a very strong position.

Maybe the investors can come up with some justification to void the contracts in court, but short of that, it seems like they agreed to a contract they're going to have to fulfill.

I wonder how many of these people would be crying *foul* if the trading price went UP and Vonage declined to sell the shares?

If any investors are reading this, you've just learned a valuable lesson in finance. Learn it well, 'cuase the tuition is steep:
"Unusual Deal" sounds like a really flaky way to invest. Didn't your mothers ever tell you that when somebody says "Have I got an amazing deal for you!", you run, don't walk, away?
Folks, Vonage isn't the only one doing the sucking here. That's why they call people like you "suckers".
Buncha whiners. You gambled and lost. Pay da house.

And if you don't think you learned a lesson, please post your contact information in reply to this message. Have I got a deal for you! Sure-fire, get rich quick.

Re:Let's piss off investors and potential sharehol

[Enderandrew]

I don't know for a fact that you can commit to purchase a stock before the IPO. That is the entire point of an IPO, is that it is the fist time it is available for purchase. You can't purchase it any earlier. And before the IPO, you don't know the price.

Breaking a verbal contract is shitty. However, are the people legally obligated? I don't know.

Ironic...

[Karl Cocknozzle]

...They probably started this program (selling shares at IPO price to customers--average Joes not Wall St. insiders) for good publicity, but now that their customers are going to instantly LOSE money when they buy shares at the IPO price, they're getting nothing but bad publicity. I mean, I know there's no such thing as bad publicity, but then ask the record companies how suing your customers makes you look.

Is "ogresque" a word? If it isn't, it is now...

Re:I'm an actual employee at Vonage

[ThatsNotFunny]

You keep repeating yourself... just like a Vonage customer has to do when using your company's shitty service.

Bad IPO + Good VOIP Service = ???

[techstar25]

Is anyone else bothered by all this negative press for a company, who for most part has consistently provided a good service? I hope all this bad IPO talk doesn't reflect poorly on the VOIP service itself, which is still pretty darn good and reliable (not to mention a great value). I guess they say there is no such thing as bad publicity.

Re:Bad IPO + Good VOIP Service = ???

[Frogular]

I guess they say there is no such thing as bad publicity.

There is, and it's called Amir Tofangsazan.

It's called a contract...

[SilentJ_PDX]

Why are all the posts here so negative about Vonage? Maybe it's a bad PR move, but they are definitely justified.

Everyone that signed up agreed to buy the stock despite incredibly dire warnings on the signup screens that the price may go down. If customers wanted to buy the stock only if it went up, they should have bought options.

Wow, this is one further than SCaldera has gone

[WCMI92]

SCaldera has pioneered suing your customers for profit. Not even they have threatened to sue their shareholders/potential shareholders!

Unless Vonage has a written contrat with those people they have no case.

Except in Utah /groan.

I did the same thing

[epseps]

$16 to $18 a share and they chose the middle of $17. I would have bought if the IPO was at around $7 or $8 a share.

And to clarify what JWSmythe is talking about "coming after him" is that we curious Vonage customers had to sign up with an account and go through steps to read about the IPO with a special account tied to our phone number and customer number. The worry is that those who went through the process as far as seeing the price and deciding against it, might be persued by zealous lawyers if enough of the people who agreed to buy the IPO do not purchase the stock they agreed to buy.

Lets hope that does not happen.

Bad Stock + Good Company = Great Stock

[thelizman]

There's a saying on the street that you can have a good company with a damaged stock. A stock really doesn't reflect the worth of a company, so you often wind up with a situation where stock prices go up when they should go down, or stock prices go down when they should go up. The plummet of Vonage stock is likely due to rumor, innuendo, or other social factors. The company itself provides high quality service, has already made it through the development stages, and is now seeking capital to expand. The only better stock than Vonage in this area is VOIP Inc, who sells equipment and service to Vonage. I'd buy a little of both if I had the cash to spare right now.

Re:Bad Stock + Good Company = Great Stock

[Zed2K]

Actually Vonage isn't a very good company. It is run by a guy that has run companies into the ground, their management is horrible, they flat out admitted that they might NEVER be profitable and they aren't the cheapest kids on the block. The stock went down because of the above, its as simple as that.

Re:Bad Stock + Good Company = Great Stock

[alienw]

Are you joking? The company is in the red. They probably won't ever become profitable. They will have trouble attracting customers. Their service can be easily duplicated by almost anyone. Their competitors (phone and cable companies) provide their air supply (low-latency broadband). Can you see this working in the long-term? In my opinion, they will almost certainly be bankrupt in 5 years or less.

Re:Let's piss off investors and potential sharehol

[twiddlingbits]

That's stupid. How much shares are sold has NOTHING to do DIRECTLY with the PROFIT of Vonage. The shares are sold to generate operating capital, not for profit. The Market Capitilization of Vonage (# shares outstanding * current price per share) may or may not be important. Sometimes loan convenants are based on debt/equity ratios and the more equity (shares sold) the better D/E ratio and ususally that means a lower the interest rate on the debt (bonds & Short-Term financing). That has an effect on Interest Expense which has an effect on Profit.If they sell shares at 12 or 17 only matters as to whether they can undertake projects using funds from the IPO or if they have to borrow it or use Cash Flow from Operations. If investors see the stock crater to $12 from $17 and think $12 is a good price they'll buy it and the stock goes back up. Until the stock price goes back up Vonage can just sit on the shares they didn't sell at IPO. IF the price goes back to $17 (or maybe more) then they sell them on the open market instead of to the IPO subscribers. If the price jumps then the investors backing out lost money and Vonage gets more capital to work with. However selling at $12 is better than waiting and selling at less if the company doesn't perform.

They are taking a risk if they choose not to pay?

[PeeShootr]

In the article, the spokeswoman for Vonage says,"They are taking a risk if they choose not to pay," Um, if they do pay, their money is already lost! I would take my chances with being sued in hopes that I could pay less than I would lose if I actually paid for that crappy stock!

Re:Let's piss off investors and potential sharehol

[bastion_xx]

Commitment to the shares required various steps which were clearly stated that if you sign up, you are responsible for the shares no matter which way they went (up or down). I think Vonage, or the institutions that performed the IPO should go after those that committed to the shares.

As part of the process they gave an estimate for the float price and cautioned that you should have X funds ready to send. I guess the real question is was there enough information during the signup process to authenticate the person and informing them of the rules of the IPO. I would think so, but then again, IANAL.

I looked into the IPO as I qualified and actually committed to a certain amount of shares. However, after speaking with investor friends, they recommended staying away from the IPO for various reasons. I went back to the site and retracted my offer. So I'm not on the hook for these shares.

Risk of the stock market...

[s31523]

I am a Vonage customer and was solicited to buy their IPO. The website they used to signup was very informative, and after reading all the risks with their IPO and disclosure of their finances I would have to say that anyone who signed up should have known what a serious gamble they were taking. Shame on them for even thinking about not paying up, shame on Vonage for not collecting the money first!

Re:Risk of the stock market...

[anagama]

Same here. I almost agreed to buy shares but in the end, chickened out. When I first heard about the chance to get in on the IPO, I was excited and decided I wanted X shares. Then I read all the warnings and skimmed the prospectus and decided that X/2 shares might be a better idea. Then I looked at the news and back at the prospectus again and decided I should get even fewer shares. Then I fell victim to the problem Vonage had where people calling in would get a message that your phone was out of service --- I decided to bag it at that point.

Re:Risk of the stock market...

[s31523]

Exactly! After all that, and you still signed up, you kinda deserve anything that comes, good or bad, but to try to be shady and not pay just because you didn't get rich quick is lame. But, again, shame on Vonage for not collecting up front.

Worst. IPO. Ever.

[Paradise Pete]

What a disaster.

Vonage decides to "let the little guy in" by offering shares to customers. But it makes the huge blunder of not actually collecting the money, letting the customers merely agree to buy. These are, for the most part, unsophisticated investors who think that getting in on an IPO means free money, and that they always go up.

Now that the opposite has happened these "investors" not only want to walk away from the deal, they want to cancel their service! Here's what one participant said: " I have had enough of this company, refuse to pay for these shares, and am canceling my Vonage service, not because it is not a good service, just because i have lost all faith and trust in this company. "

Leaving aside any questions of his logic or good faith intentions, Vonage has dug themselves a huge hole and jumped right in. And it's going to get worse before it gets better. The only way these people can try to get out of paying is by canceling the service. So sooner or later Vonage is going to have to consider sucking it up and "forgive" all those promises to buy in order to keep their customers. But if they do that the stock plummets, and here comes a class-action lawsuit from the stockholders.

Re:Worst. IPO. Ever.

[alexander_686]

You can not collect the money upfront. Selling new issues of a stock [IPO] is a very strictly regulated process, both in terms of processes and timing. And I am sorry for the people who did not get to trade their stocks the first day. That is sad. However, having worked in the back office of a securities industry, I can so see how this could happen. Getting the shares from the underwriter to an individual account must translate across at least 3 different technology platforms. None of them terribly well integrated or automated. As for the little people who got stung - I have little sympathy for them. IPOs are not priced so initial investors have a sure thing. That is against the law. The company, with the help of the underwriters, must price them fairly. [Though they tend to be conservative and hence low]. The little guys are discouraged from doing IPOs because they complex and can become very messy very quickly. We are talking about a brand new company with no track record trying to guess how much it is worth. If you invest in the stock market, you know that you could lose it all. Doubly true for IPOs.

Re:Let's piss off investors and potential sharehol

[Svartalf]

Actually, it will send the investors to the hills. You can pledge whatever you want, unless you sign your name to the dotted line on a contract saying you will do "X", you have little room to work with. All this is going to do is cause their current share price to plummet further.

It's a dumb move on their part- what they need to do is do things to improve the market's confidence in them, this isn't it.

They're taking a risk alright...

[Andy Somnifac]

"They are taking a risk if they choose not to pay"

It looks to me like they're taking a risk either way.

Re:Let's piss off investors and potential sharehol

[bobwoodard]

Yep, they made you go through multi stage process where they warned you multiple times that you could lose some or all of your money. They also made you analyze your threshold of risk and after all that and a few more dire threats you were given the agreement to puchase an unknown number of shares. It was unknown since the number of share available was dependent on the number of people participating.

You're correct though, you weren't agreeing to purchase the shares before the IPO (since the price wasn't known), you were agreeing to purchase the shares at the opening IPO price.

Since the IPO was pretty bad, you've now got some upset people.

Re:Let's piss off investors and potential sharehol

[Anonymous Coward]

At the end of the day, an obligation to buy at a certain price is still an obligation to buy, even if the market went against you after you made the agreement.

Buying into IPOs carries substantial risks, and it is not normally possible to sell IPO shares immediately; if you want to flip your shares, you don't use the IPO to acquire shares.

Vonage Sucks, period!

[TheSkepticalOptimist]

I switched to Vonage after using Primus Canada's Talk Broadband for nearly a year. The reason, I didn't like the way Primus treats their customers (I got slapped a $25 NSF charge because of ONE failed attempt to authorize a credit card payment, they didn't even bother to try again (which would have worked), they just automatically billed me).

Anyways, I kept hearing about Vonage, Vonage, Vonage. Every big box electronics store promotes Vonage to death, every website has about a dozen Vonage ads on it. Slashdot and other blog sites is always Vonage this and Vonage that, so I decided to switch to Vonage.

I liked the fact that I could walk into a big box store and buy a $65 VOIP router (that wasn't a DLINK router like what Primus uses, I hate DLINK). After 90 days of service, Vonage will rebate your $65 as an account credit. I also liked to option of buying a VOIP integrated phone system if I wanted at a later date.

Installing and registering Vonage was easy and flawless and I was up and running with a new virtual number in no time while my current phone number was being switched from Primus to Vonage.

Then my love affair with Vonage abruptly ended. As soon as my phone number was switched to Vonage, I started getting frequent telemarketing calls. Primus TalkBroadband lets me set up UNLIMITED blocked numbers list, so every time I got a telemarketing call, I just blocked that number, but it only happened a couple of times on Primus. As soon as I switch to Vonage and my old number became active, I got 6 DIFFERENT telemarketing calls a day from different numbers. So, there is NO DOUBT in my mind that Vonage is giving or selling away their customer contact information to telemarketing firms!

This conclusion also stems from the fact that Vonage doesn't allow you to block calls by Caller ID. I asked their customer support if they would implement that feature, and they simply said they are looking into it (i.e. no, we are not planning to offer that feature, but we will tell you what you want to here). The bottom line is with VOIP, implementing caller blocking is dirt simple. It doesn't require any additional programming or research or development. The FACT that vonage doesn't offer caller block means that Vonage is getting investment dollars from Telemarketing firms and these firms are using Vonage's customer list to make calls. I am even getting INTERNATIONAL Telemarketing calls from European exchanges.

Secondly, Vonage has the ability to charge by the second, but instead, they round up to the full minute. This is an unscrupulous and unnecessary practice because with a completely digital telephony system, there is no reason why you can't bill by the millisecond. The fact they round up to the nearest minutes simply means that Vonage wants you to go over your 500 free minutes and start getting charged per minute OR they want you to get into their unlimited plan (which costs $10 more then MOST competitors unlimited plans including Primus Canada). To exacerbate this fact, Vonage has called me 6 TIMES leaving long messages saying that I should call them back in order to have them explain all the features ( or really, lack thereof ) Vonage has to offer me. These calls are NOT free, they are NOT made through Vonages system (i.e. Vonage doesn't use their own service to contact customers). I did the math and calls from Vonage are being treated as outside calls, thus running up my usage. I found it amusing that Vonage called their customers asking them if they want to buy into their stock. Of course they would, it would eat up a few minutes of any customer that doesn't have the unlimited plan, inching them closer to pay per use.

Lastely, Vonage sucks, period. They are NOT a competitive VOIP service, they are just a shyster company that formed enough partnerships with big box electroncis stores, Google Ads, and telemarketing to ensure that Vonage becomes a buzz word that sticks in peoples heads. When you think of VOIP, Vonage should come to mind. The fact is, there are

Re:Vonage Sucks, period!

[jhribar]

Ever consider the fact that all the numbers you blocked on your old provider were now unblocked and that's why you got flooded? Sounds like your old number is the problem, not Vonage. IMHO.

Re:Vonage Sucks, period!

[Anonymous Coward]

What part of "new virtual phone number" did you not read?

I gave up on Vonage after 2 months with them and they still hadn't transferred my number, their web portal didn't have as many features as Primus (and was offline quite often.)

Vonage is quite vindicative if you cancel your service... you get charged an extra 30 days of "service" PLUS a cancellation fee -- this after their retention department outright lied to me in order to get me to extend my service beyond the 30 day (in Canada) MBG period

Vonage is a snake of a marketing company. Primus is a telecommunications company. Which would you rather have VoIP service with?

Re:Vonage Sucks, period!

[Anonymous Coward]

Funny, I've had Vonage for 6 months now and I've seen no increase in the number of telemarketing calls; I get 1 or 2 "survey" calls per month on average, and I simply ask them not to call back. My old landline number was switched over promptly, though, and that's both unpublished and on the national do-not-call list. I suppose with a new virtual number I might've received more telemarketing calls, since it wouldn't have appeared on that list nor on the do-not-call lists of marketing firms that've tried calling over the years.

I've also never had Vonage call me asking to call them back and have them explain features to me. Not once. But then again, I can use Vonage's website to learn about and set up their various features. I'm guessing that you can't for some reason, since you apparently don't know that you can have Vonage email your voicemail messages to you, for example. It's very easy to set up.

So I guess I'm a happy Vonage customer. My only complaint about Vonage is that outbound calls don't show my caller ID --- so people I call sometimes assume that *I'm* a telemarketer! They fix that one little deficiency, and I run out of things to complain about.

Re:Vonage Sucks, period!

[ebrandsberg]

1. ALL phone companies will sell your new phone number. It is a given. That Vonage made more on your number than others is simply how they are TRYING to make money. You have to request when you sign up not to have your phone number sold--it is called an "unlisted" and "private" number, and you usually have to pay for that, to offset the profit they make from the number.
2. You need to ask what the rounding factor is for all companies--some bill by the 10 second, some by the minute. Most charge by the minute.

The rest of the issues, wow, using your own included talk time to sell you stuff? Never used Vonage, and probably wouldn't now.

Re:Vonage Sucks, period!

[Anonymous Coward]

VINDICTIVE

Re:Vonage Sucks, period!

[vidmaster]

Inbound calls are free on vonage, they are never deducted from your minutes with the limited plan. Try reading, amazing that people buy services without reading what they sign up for. The Plan: Vonage's Basic 500 Plan provides the following for the unbeatable price of $14.99 a month: * Unlimited incoming minutes * 500 outgoing minutes a month anytime to anywhere in the US (including Puerto Rico) & Canada

Re:Let's piss off investors and potential sharehol

[lowrydr310]

When you commit to buy shares, do you buy them at the IPO price or the current price? It would be really bad if shares are trading at $10 and you have to still buy them at $17.

Hopefully this experience will shake some sense into people who think that IPOs are a way to make easy money.

Re:Let's piss off investors and potential sharehol

[jasonmicron]

This isn't going to piss off investors or potential shareholders, it's good for them.

Yea, it won't piss off any of the investors. ...except for maybe those that want OUT.

Short?

[Lord_Dweomer]

So...anybody happen to short them on this IPO? Actually...can you even short a stock on its IPO?!

Re:Short?

[Anonymous Coward]

Usually you can't sell stock short for some number of days after IPO...

Re:Short?

[alexander_686]

You can not short the stock of a new issue [unless you are a Market Maker] until 30 days after settlment [Trade Date + 3 trading days]. It is a Federal Reserve Rule

Why is everyone on the side of the gamblers?

[SmallFurryCreature]

Lets be honest here, not that many people buy stock to truly invest in the future of a company. It is bought in the hope that in the near future it can be sold for a profit.

These people who signed up thought they were going to get cheap stock and a quick and easy profit. They gambled and they lost. Awh. My heart breaks. Now pay up.

IPO's going wrong is nothing new and you always get these middle class people who thought they were going to get something for nothing bithing that now they find out what stocks were originally for. To invest. Long term.

If you didn't think that Vonage would use the 17 dollars to invest in itself and that this would allow it to pay a small return to you the coming years then you are a speculator.

The filth of the modern world. People who rather see a company go bankrupt then just remain steady because a steady stock can't be speculated with.

Remember all those companies that were punished for just making boring profits during the internet boom by seeing their share price plumet? Purely the result of speculators wanting stock to move so they can gamble.

No these people get no sympathy from me. What next, you do not have to pay the casino unless you win?

I don't know if this is a happy or sad fact...

[SupremoMan]

But if this IPO happened little over 6 years ago, the price of a share would be $170 after first day.

The Vonage IPO renegers will probably win....

[TheBigDuck]

Securities Law has it's own set of rules. I suspect this story is false. Vonage CAN'T go after the investors who reneged on the deal. Why should they? The brokerage firm "brokered" the deal, so that responsiblity falls on them. The investor reneged. Despite signing every possible disclaimer, the brokers can ONLY take them to arbitration (not court). The arbitrators almost ALWAYS side with Mom and Pop investor, all they have to do is act like "unsophisticated" investors, and they are clear. I'm not saying it is right or fair. Life isn't fair. The defense for the renegers will merely ask the Lawyers of the Brokerage Firms, "DID your firm PROPERLY CONFIRM that THIS was a SUITABLE investment for this person?" Their response of, "We had a webpage explaining the risks", will NOT be good enough. This is going to be some circus.

Re:The Vonage IPO renegers will probably win....

[Vengie]

Have you studied the law at all? (I mean this in the non-facetious, honest way). 15 U.S. 178 (1817), among other things. What makes you say that the brokers can only take them to arbitration? And if that were true, and if the arbitrators ALWAYS side with mom and pop investor, and the brokers could make a strong showing of that, they could easily have the award overturned in federal court. "We had a webpage explaining the risks" will be enough -- read any of the e-Commerce cases in a first year Contracts textbook. (Gateway, Step-Saver, etc)

Re:The Vonage IPO renegers will probably win....

[TheBigDuck]

My BAD. I read the Wall Street Journal article and noticed an interesting clause in the IPO:

"If customers don't follow through on purchase plans, the company could be on the hook with its bankers.

According to Vonage's IPO prospectus, it has "agreed to indemnify the underwriters against certain liabilities, including those that may be caused by the failure of Directed Share Program participants to pay for and accept delivery of the common stock which had been allocated to them."

I still think the renegers still have a shot of getting away with it, but this could bypass arbitration and become, as one poster said, a contractual court case. In which case, the renegers will lose.

Underwriters should have required $ up front!

[Bubba]

... Like Deutsche did for the VA Linux IPO. The money for the shares was required to be sent to them beforehand and be in the account prior to purchasing the IPO shares. I guess Vonage didn't have enough time to require this and preferred fast-tracking their IPO. Looks like the number of IPO shares sold looked a whole lot better on paper not requiring the money up front.

You know nothing about the stock market.

[mcmonkey]

The more shares Vonage sells for $17, the more money it makes, and the more valuable it is as company, which should mean the shares go up. Good for investors, good for potential shareholders.

Ummm....no.

There's something called supply and demand. At $17, the supply of the stock was greater than the demand. Hence the price fell. By pushing these sales, Vonage is foisting more supply on a market with already week demand.

The people who buy stock through this program don't sound like the buy-and-hold type. Yes, some hold the stock in hopes it might some day return to the IPO price, but many will dump it and cut their losses. Which will again raise supply and drop the price.

If the plan is to help the stock price go up, rather than increase supply, Vonage should buy back stock. Such a move would decrease supply of shares in the market and send a message of confidence.

Right now it sounds like Vonage doesn't think shares will top the IPO price for a long time. If I sell you something for $17, and you never show up to complete the deal, and it turns out to be worth $12, I'm out $5. If I make the same sale, and you back out, and something turns out to be worth more then $17, then I'm not going to make much of a fuss.

Bottom line, at this point pushing sales at the IPO price is good for one group--VC who are using the IPO to cash out and get out of the Vonage business. They want max money now and don't care what happens tomorrow. If you have any continuing relationship with Vonage, then it is a bad idea.

Re:You know nothing about the stock market.

[xenocide2]

Bottom line, at this point pushing sales at the IPO price is good for one group--VC who are using the IPO to cash out and get out of the Vonage business. They want max money now and don't care what happens tomorrow. If you have any continuing relationship with Vonage, then it is a bad idea.

What about the investors who agreed to pay 17 dollars for something worth twelve and didn't back out of the deal? I'm pretty sure the perception of a fair market offering is important to these people.

Re:You know nothing about the stock market.

[Anonymous Coward]

"If you have any continuing relationship with Vonage, then it is a bad idea."

Good advice. Back in January, when I had the bright idea of saving a little money, I went to Vonage and signed up for an account. I was told that all I had to do was sign on the dotted line and my phone number would be transported out of Verizon. I waited, and waited, and waited (I'm a very patient person). Finally, they told me that I needed to contact the Public Utilities Commission, because Verizon had no agreement with them to transport phone numbers in my area (!). I contacted the PUC and they told me this was a lot of hog wash. Still the guy at the PUC contacted Verizon and confirmed that Verizon just needed Vonage to give them the order and they would transport the number. This information was relayed back to Vonage by both me and the PUC guy. Vonage just responded over and over again with the same form letter, "Thank you for your patience, we will contact you when we have more information." Finally, 5 months later, I get a once-and-for-all form letter saying basically this isn't going to happen for reasons out of their control. If I want an account with Vonage, I have to change my phone number. Thank God I missed the December 2005 cut off for getting in on that IPO. That was a good sign about what kind of operation they are running over there.

Re:You know nothing about the stock market.

[mcmonkey]

What about the investors who agreed to pay 17 dollars for something worth twelve and didn't back out of the deal? I'm pretty sure the perception of a fair market offering is important to these people.

Well, umm, no again. Perception may be important to people who bought in at $17, but reality should be more important.

Vonage selling more shares, at any price, will increase supply. Unless demand increases by a corresponding amount (or greater) the share price will go down. Holding other buyers to a commitment to buy shares at $17 may make current holders feel better, but it won't help increase the value of their shares.

Re:You know nothing about the stock market.

[Keybounce]

If the plan is to help the stock price go up, rather than increase supply, Vonage should buy back stock. Such a move would decrease supply of shares in the market and send a message of confidence.

But think of how much more they can buy if they rebuy at 10 or 11, and by forcing the price down just a little more, they stand to make almost an immediate 40% profit rebuying their stock at a lower rate.

Think about it:

1. Company officers will be seen buying large values of stock.
2. Stock will be seen as hitting a bottom, and stablizing, with an upturn at the end (as company officers buy the now cheap stock)
3. Company releases a new press release about their latest happening

Suddenly, they get a "target $18" slapped on them by a trading company (hmm, isn't one of those trading / stock reviewing companies responsible for the IPO in the first place?), and people buy, and the price goes up.

Any takers?

Re:You know nothing about the stock market.

[xenocide2]

What about the fundamentals here? You keep claiming you understand Wall Street better than the rest of us and then bring up freshman level supply and demand, but there's some pretty straight forward math involved in valuating a company; calculations that drive much of the "demand" side of the equalibrium. I'm sure an enlightened individual such as yourself is aware of these invisible guides, but allow me to educate those other readers who may be still in the dark: price reflects the overall value of the company, including current assets and future income. If a company creates a new share and sells it at market value, it's theorized that the price of the stock should remain constant. The additional shares outstanding reduces the current shareholder's valuation some, but this is offset by the new assets the sale produced. In a market with a few of bright competitive participants, the valuations should align with the fundamentals. I posit that there are at least a couple of such people.

This is what allows an IPO to occur, but what happens if you sell stock above market price? If market value kept the price in balance, any excess should drive fundamental valuation, and therefor price, up. At a 5 dollar markup, current shareholders would be hard to argue against such an action, especially if they also paid such a price. Because demand is largely a function of underlying valuation, either you or your theory is full of shit.

The truth is that if Vonage lets people off the hook, the people who held their end of an unsavory bargain were defrauded. These people signed a contract, even the anarchic libertarians should agree that contracts are vital to a society. The concept of fairness, both real and percieved, are vital to a thriving market. Fortunately, the SEC appears to back me up here, which is why Vonage is back-pedaling. You might say the SEC represents those companies in the future that might IPO, fighting to stop people from abusing the IPO system and causing a severe distrust (and therefore, lower demand) in the offerings.

The fly in the ointment here is the reality surrounding this particular IPO. It's quite a challenge to be fair in the Vonage IPO scenario. Someone really screwed it up. Not in the "everyone lost money" or "zOMG look at that price fall" sense, but in the 5-minutes-after-market-close "btw, we sold you these shares, pay up" sense. Such people were at a huge disadvantage, and were given discriminatory treatment via that late notification.

Re:Let's piss off investors and potential sharehol

[Tekzel]

Its no suprise it was pretty bad, they are pretty bad. I had them for a little while (was unsatisfied with AT&Ts VOIP offering after a year so tried Vonage). Was with them less than a month and the service and support was so bad I had to cancel, it was basically unusable and the support was WORSE than the service :). Switched to Comcast VOIP and haven't had a single problem in 2 months, its as good as a land line (at least). Basically, I would say Vonage was the worst mistake I have made in a long time, except the fact that they did give me a full refund (cancel in under 30 days), so have to give them props for that at least.

Underwriters are already in the clear.

[Adrian Veidt]

Vonage is on the hook for that money. I was allocated 800 shares. at around 9:40 with the stock at 17, i logged in to my UBS account. There were no quotes, and trading was entirely disabled. I tried market orders, limit orders. So I called in. After waiting on hold, i got a print at 16.24. The manager explained that the website was down and no vonage ipo customers could enter orders or see quotes on the website, so customer support was backlogged with frantic customers. I received no evidence or confirmation of my print for 24 hours, when the website finally showed the execution. I called in to argue for a price adjustment. The internet services manager told me she had adjusted my print to 16.75 (I have her name and the time of the call). So Vonage will probably slap collection on me, suspend my service, maybe even zing my credit. Here's my message to you Vonage: FUCK YOU. I'm not angry the stock went down. I'm angry that i was enronned into eating a tanking stock, lied to about an adjustment, and then made out to be a whining asshole that doesn't want to eat the loss. I could give two shits about eating a 600 dollar loss (76x800). What I do care about is being mugged, which is what UBS did here. If anybody else had a similar experience, let me know. I would really like to initiate a class action suit.

That's what Savvis did.

[Anonymous Coward]

When Savvis split from Bridge years ago and IPOed, all the Bridge/Savvis employees were raped. They waited until the last minute to tell us what the actual share price was and we went in a glass room one by one with a phone and made our orders. The stock price was up about $6/share more than expected but there was so much hype no one cared. People had taken out 2nd mortgages, borrowed their family fortunes, etc. and got screwed. Meanwhile, Rob McCormick is making millions of dollars and racking up $250,000 strip club bills.

Yes I'm bitter. Yes I'm anonymous.

Buyer's remorse...

[Anonymous Coward]

Doesn't mean buyers get to ignore their agreements.

Refusing to pay may be risky too.. the buyer may later be held to the original agreement.

Market value is based on how the rest of the world (most of which didn't buy into the Vonage IPO) values it. I personally estimate within 3 months, VG to settle below $7@, an earnings of about -20% would still be nothing to brag about, EPS around the offering of -45% share value was just insane. VG supposed value is in expected growth, in my estimation they're a burning through cash like it's 1999.

ALL CIRCUITS ARE BUSY

[Anonymous Coward]

This is a company that reminds me of AOL. Quality and customer service are completely secondary to marketing.

you can help those of us that got screwed

[Adrian Veidt]

I have a arranged for 3 people to close their accounts on my behalf to "pay" for the money I lost because UBS locked vonage ipo customers off their site at the open. If you are a victim, please let me know how much money you lost as a result of UBS incompetence and why. Then we can pair you up with vonage customers and close enough accounts to make up your loss.

Re:Let's piss off investors and potential sharehol

[MrDoh1]

Must be a YMMV thing because I've had Vonage as my sole phone provider (no landline or cell) for well over two years and it's never even dropped a call unless Cox was having problems. (Which was obvious because nothing worked, not just VOIP.) And no, I did not participate in the IPO... Who the hell has any money these days?

Contrast with VA Linux...

[Dr. Manhattan]

The little guys are discouraged from doing IPOs because they complex and can become very messy very quickly.

I got in on the VA Linux IPO. At the time, the tech IPO market was going insane, and Red Hat had, just a couple months before, shot up dramatically. I figured that the odds were small that we would lose money. We decided to go for it and my parents put in some money, too. I sold most of my shares the next day for a (really) hefty profit, and held onto a few (which are now worth... quite a bit less).

(I remember calling my wife up on the phone the day of the IPO, when I was checking the price. I was so numb when I first spoke, just from my tone of voice she thought we'd lost everything. I corrected her quickly. :-> )

I was also offered to get in on this Vonage IPO, but I simply figured that the IPO market wasn't in anything like the special situation it was back in 1999. Since I wasn't qualified to assess the risks involved, it was better to stay away. Glad I did...

Re:They are taking a risk if they choose not to pa

[Zed2K]

So you would let it go to collections and screw up your credit rating for the next 7 years because you didn't bother to do your homework on participating in an IPO?

Everyone complaining about this are complete and total fucking morons.

Re:Let's piss off investors and potential sharehol

[Jerim]

I agree with your assestment that it is good for investors. We all love to get deals on stock. However, it is never a "positive" for the company to go after it's very own customers.

Be a happy-go-lucky type of company. Don't start blackmailing your own customers. It will just create a downward death spiral.

Vonage is nothing but a den of thieves

[presearch]

Within a year, they will implode.

Worst customer service imaginable, except when signing up.

They keep billing after the customer cancels.

They claim they never receive returned equipment and charge for it.

The Vonage business model is theft.

Re:Let's piss off investors and potential sharehol

[drooling-dog]

That's stupid. How much shares are sold has NOTHING to do DIRECTLY with the PROFIT of Vonage.

Um, where in the parent post was anything at all said about profit?

going after customers..

[WinEveryGame]

Going after customers (who can easily switch to almost free services) sounds like such a smart strategy.... Better way to salvage the IPO is to serve the customers better.

Re:Let's piss off investors and potential sharehol

[timeOday]

In considering whether these "agreements to buy" should be considered "purchases," let's ask this question: what if Vonage had "agreed to sell" at 17 and the stock shot up to 25? And then Vonage said "whoah, we're not selling at 17, the new price is 25." I think all these people with "agreements" to buy at 17 would be filing a class action lawsuit right now. Unless you can dispute that (with a straight face), you can't fault Vonage.

Woo hoo, hoo hoo hoo!

[Captain Scurvy]

I am dropping Vonage for a cheaper service that comes bundled with my ISP. Vonage's service has poor quality; I get echoes, people's voices randomly fade out, my voicemails don't get to me on time, and every now and then, my call gets dropped completely.

Re:Woo hoo, hoo hoo hoo!

[Larry Lightbulb]

I am keeping Vonage for a cheaper service than that which comes as an extra with my ISP. Vonage's service has good quality; I don't get echoes, people's voices never randomly fade out, my voicemails get to me on time, and my call never gets dropped completely.

Re:I'm an actual employee at Vonage

[JazzLad]

Ya know, had you anything intellegent to say, I would have called for a +mod. I really like to hear an opposing side & hate it when it is -modded for being against the current consensus. But, alas, you have nothing intellegent to say. At least you didn't say it. To me that is sad. BTW: I am aparently a rarity. I am a /happy/ Vonage customer. The features are a little slim, but of course I read up on them prior to signing up so I won't whine about them. The uptime is far better than my previous VOIP provider (Lingo/Pimus) but costs $5/mo more. Like everyone else I want $5/mo VOIP with 100% uptime and CD quality audio (that automatically cleans up the other party's audio) that I can use a wifi phone with that came for free with my no commitment plan that gives me the complete company directory for when I have trouble (which I won't, because they are perfect) that has every feature I can think of & when I do think of somehing new, they implement it immediately. I guess we will all have to wait for GoogleVOIP ;) -- This is not interesting, funny, flamebait nor trollish. Also not insightful enough to waste mod points on.

Those wacky Vonage commercials

[Anonymous Coward]

My dog has a strange fascination with them. Whenever he hears that song, he looks at the TV with his head cocked. I've seen him snoring on the couch, but when that commercial comes on, the ears start twitching, and up comes the head to stare at the TV. Kinda makes you wonder who was in the group that tested these commercials...

Did anyone read the financials?

[C10H14N2]

This IPO had so many glaring red flags I can't imagine why anyone would jump on it. Principals with fraudulent backgrounds--and that's just the stuff they HAD to disclose--a questionable split and sweatheart options executions just prior to the IPO, a massive debt and burn rate, horrible dire predictions about competitiveness and on and on and on. If they had gotten the full estimated value of the IPO, they would be in the black for less than a month.

This was more an attempted robbery than an IPO.

Re:Let's piss off investors and potential sharehol

[Tekzel]

Certainly not me :/

I had a wide variety of problems which included one side of the conversation (depending on was the caller and the callee) just going null. It would sometimes just drop the call altogether. Support 100% of the time wanted to blame my ISP (comcast cable) but I never had any problems with anything else working on my cable, even voice chat like Ventrilio. Ah well, like you said. Glad to hear it works good for you though.

And if the Price had gone Up?

[Anonymous Coward]

And if Vonage had decided that they didn't like the fact that the price had gone up and decided not to deliver the shares?

If you call your broker and say you want to buy shares in any company at price x and the broker buys the shares for you at that price, it doesn't matter if the shares go up 50% the next day or down 50% the next day, you owe the broker the agreed upon price.

Maybe Vonage customers are that stupid that they think every IPO goes up and that they can sign contracts to purchase and then back out after the price goes down instead of up. Or maybe the ethics of a hand shake or a signed agreement don't exist anymore.

Do'h

[Anonymous Coward]

> Shares of Vonage, which offers Internet-based phone service, immediately plunged from the $17 IPO price, and they closed Wednesday at $12.02 in 4 p.m. "If they don't pay, we will reserve our right to pursue payment," said Brooke Schulz.

In related news, shares of Vonage just plunged from $12.02 to $0.32.

Yeah, Vonage probably does have the right to insist that the shares be purchased at the inflated $17, but it seems stupid to exercise that right as the press makes everyone else not want to touch the stock or sign any contract as a customer or investor.

Re:They are taking a risk if they choose not to pa

[Anonymous Coward]

Damages + legal fees can be far greater than the $5 a share you'll lose.

Re:Let's piss off investors and potential sharehol

[dgatwood]

Don't IPO shares have to be paid for on the IPO date? How is it that Vonage is still holding these shares at all?

Does anyone know if companies are allowed to buy put options on their own stock? Because if they expected the stock to crash and burn, that would be a neat way to profit twice on the same stock, assuming it's legal....

IPO underwriting

[slew]

Of course the original investors and the underwriters want to make piles of money ;^)

However, to clear up a common misconception, most IPOs are actually "best-efforts" IPO, not a "firm-commitment" IPO. The main difference is that in a "firm-commitment" IPO, the underwriters (or a syndicate of underwriters) essentially buy the whole offering for a set price and resell them to their clients. In a "best-efforts" IPO, the underwriters are only required to transact the amount of shares to fulfil their client's demands. Of course the risk is lower for the underwriters to do a "best-efforts" IPO so it's usually cheaper for a company to do that (underwriters take a smaller cut). However for a hot IPO, underwriters may do a low-cost "firm-commitment" IPO.

As for how IPO investing is very risky and can lose money, here's how.

The underwriters usually make up the IPO price by just judging the demand from institutional investor clients and their promise to buy shares. Then they use a "subscription" model to allocate the shares. Once the IPO prices, but before they shares start trading they solicit subscriptions from potential fish (I mean investors). The investors look at the IPO price, and commit to buy up to a certain number of shares. The underwriters often give you a "red-herring" price range before the IPO prices so you can mull it over before they give you the real price and subscription.

In any case, once you subscribe, you may get the amount of shares you subscribe for, but often you may get less (in many cases an IPO is oversubscribed and the underwriters end up giving you less than what you subscribed for using some allocation scheme among all subscribers, usually favoring the big subscribers). To try to get more share, some clever people stretch themselves (assuming they will get less than their subscription). Of course this is somewhat risky since you are on the hook for payment up to your maximum subscription level as soon as you subscribe and the IPO price is known, but people do that all the time.

The next day after the IPO prices, you are informed how many shares you actually got and the shares usually start trading, but like most securities transactions, you don't get your actual shares delivered for about a week (in the best case usually no sooner than the 3 day customary setting time). If the IPO subscription was low (indicating low demand), you may find out that instead of being over-subscribed and getting less than you asked for you might have gotten all that you asked for. Unfortunatly, when this happens and you are waiting for your shares to be delivered, the shares will probably drop in value. Now you are stuck, you can't sell your shares since you don't have them yet, and if the shares are dropping in value you may find that you can't even "short" sell your shares (you need to borrow shares from your brokerage to sell to short and they often don't have any for you to borrow). Even if you managed to borrow some shares to short-sell, you have to short on an uptick (which isn't happening when the shares are going down). By the time you actually receive your IPO shares so you can sell them, they may be worth much less than you paid for them. Note that the institutional investors took exactly the same risk and are in the same boat. Perhaps they took a more informed risk and were less leveraged, but that's not their fault was it?

The underwriters on the other hand already gave the money to the company at the IPO price in exchange for the shares their clients subscribed for, they just want the money their clients promised them in exchange for shares (and of course they also had to pay for the shares they kept for themselves at the IPO price too and aren't giving themselves an out). Just like people shouldn't expect refunds on lottery tickets if they didn't win, why should people expect one here? Or if you borrowed money to buy lottery tickets and they didn't win, should the debt be forgiven? Of course people with winning lottery tickets don't ask for refunds, right ;^)

Unenforceable

[Anonymous Coward]

So Vonage turns from VoIP to Collections. Isn't that quaint, and an act of desperation.

This is what you get for 1) poor customer service, and 2) going IPO prematurely (or at all).

Suffer the consequences like a big boy and stop whining.

Mod up +5

[Anonymous Coward]

Amen. I cannot stand those ads. I have come close to throwing objects at the TV just to shut it up. It is ruining relationships with family. Someone needs to outlaw such annoying commercials.

I hope...

[Bryansix]

that this encourages people to dump the stock of this silly company. They are always screwing things up like not complying with E-911 in time and failing to price thier IPO correcctly.

Full Disclosure: I own a position in Packet 8 (EHGT)

vonage CEO, a bit shady?

[zyzzx0]

I read through the financials and thought, "nah, this is one of those that I'd probably want to buy after 90 days when the IPO buyers sell out."

Jeff Citron is a rich guy who, by the way, has received one of the highest fines by the SEC on an individual, a $22 million fine.

Is Vonage company that makes money by being a 'money-grabby business' or a company that makes money by trying to be a successful company?......

Re:Let's piss off investors and potential sharehol

[twiddlingbits]

The parent post says " The more shares Vonage sells for $17, the more money it makes,...". to 90% of the people "money it makes" means profit.

Re:Let's piss off investors and potential sharehol

[drooling-dog]

to 90% of the people "money it makes" means profit.

Then 10% know better, I'd say. Selling your equity for more, rather than less, certainly counts as "making money" in my book!

Re:Let's piss off investors and potential sharehol

[Lord Flipper]

Does anyone know if companies are allowed to buy put options on their own stock? Because if they expected the stock to crash and burn, that would be a neat way to profit twice on the same stock, assuming it's legal....

Sure. Companies can bet against their own stock. It would be extremely bad PR if they did so (with some clear exceptions, see below). They would, most likely, be required to issue some sort of 'news', or factual material, that supported their own 'opinion'. [as expressed by their obvious negative outlook on their own stock]

But with an IPO, and the subject of puts and calls, you have to remember that the rules governing 'bets' for and against a stock can only be made when the last transaction in the stock, itself, has gone 'against' the profitable outlook for the stock as expressed in the put or call contract.

In other words, if I want to bet against Apple, using puts or calls, I have to do my deal when Apple stock is on an 'uptick.' And vice versa for a pro-Apple 'bet'...i.e., the stock needs to be on a downtick before I can bet on it in that put/call market. Otherwise you'd have tons of folks, observing a rise in a stock's price, let's say, and they'd pile in saying, "I bet the stock is going to rise." Puts and calls are created as insurance (risk management), not mirrors of already-established activity.

There are cases where a company might want to insure its own stock, using puts. Example:
  Company A is being bought by Company B for X-number of Company B shares. In that case Company A would buy the puts on Company B stock, not their own. Why? Because the time between the acceptance of the deal, and the consumation of the stock transaction, means that the 'currency' (Company B's stock) is at market risk, and if its shares drop in price, then the deal, for X-number of shares is worth less when the shares change hands, than it was when the deal was accepted. The ONLY time Company A would do a similar put trade on their own stock would be if the terms of the deal were based on, say, a percentage (like 120%) of Company A's market value (numShares x sharesOutstanding). That would be a rare deal, that I haven't seen.

To sum up:
  Vonage couldn't buy puts on an IPO of their own stock, because there's no previous up, or down, 'tick.' But a company might hold many shares of its own stock, and a series of puts on the stock would be justified. Why? Because if their holdings dropped, the loss is on paper, and would be made up for by the profit on the puts. Still, it would look crappy, in terms of PR, but could be explained. The simplest explanation being: "If we were negative on our shares, long term, we'd sell, but we aren't negative, so we are holding the shares, long term, and protecting equity, by managing the risk inherent in being exposed to market forces." The company's holdings of their own stock is a de facto liquid part of company equity, and is part of the intrinsic value of their shareholders stock. So they're protecting ALL shareholders, not just the compan, or insiders. Very simple, very straightforward.

And, no, I don't even have a driver's license. :=)

As a matter of fact, I have a friend whose business partner sold a software company (division) some years ago. At the time of the deal's acceptance it was worth around $550 million. There was a 6-month 'gap' before consumation. I told my friend, "Tell your buddy to buy puts on the other company's shares, on the next uptick, just enough contracts to cover the current value of the deal."

There's a lot of leverage in puts and calls, so, for about 30 grand the guy could have bought puts going out 6 months to insure the deal at around $550 million.

Unfortunately:
  I had no 'certification', no series anything, I didn't 'count', and he ignored the advice. I still have no license, and the 'other guy' lost somewhere between $175-215 million bucks (I forget the exact amount) when the 'other' company's shares dropped in the 6-month interim. He would have still 'lost' the 'value', in terms of the stock, itself, but would have profited an equal amount in the increased value of the put contracts. Tough luck for him. C'est la vie, pal.

Re:Let's piss off investors and potential sharehol

[nelsonal]

The company could most likely own put options on itself, although it might come interesting if their auditors felt the position needed to be disclosed as a footnote. I know Microsoft and Dell were writing put options on their own shares when the bubble burst (MS just bought them back early, Dell repurchased the stock for several years at well above market prices). I don't believe they were the only two, just two who were still doing it in size in 2000.

Re:Let's piss off investors and potential sharehol

[nelsonal]

Minor nit, you don't have to wait for an uptick to buy options. You do have to wait for an uptick to sell short. Your strategy was essentially what Mark Cuban did to remain a billionare after the dotcom crash. Most purchase agreements forbid it as a matter of boilerplate, but his somehow neglected that item.

Re:Let's piss off investors and potential sharehol

[nelsonal]

Also, I've never heard of any stock where you can buy 6 month out, at the money options for a basis point of par, 1-2% would be very cheap options (especially for stocks that drop as much as that one did). 5% would be normal technology company premiums (it would have taken about 30 mn to buy those options in most cases, but still would have been a good bet in this case). Since he was hedging, I'm sure he could have found a few banks to loan him the money. The OCC might have had an issue with his owning 100,000 contracts, though.

Re:Let's piss off investors and potential sharehol

[Lord Flipper]

yeah, he might have had to roll 90-day contracts, or go for LEAPs, who knows? The technicals of it are, well, technical, and yeah I was off on the 'cost.' But the movement in the stock justified the deal, from my point of view.

I did plenty of uncovered calls stuff, and would take nasty 'hits' if I failed to roll the contracts further out when the movement in the index (OEX at the time) bumped up against my then-current trendlines for volatility. I'd cash out the trade going against me and 'roll' the same number (about) of contracts out another month, usually. It was nerve-wracking.

Like I said, I'm not a trader, just someone who did a lot of trades, and gave very profitable advice to a few guys, over the years (in the 80s and 90s, mostly).

My points were that, one, you don't necessarily have to be licensed to have some idea what's going on, and, two, that a company can 'bet against' the future value of its own stock for legitimate reasons. It wasn't a treatise on the subject, and was far from 'exhaustive.'

Re:Let's piss off investors and potential sharehol

[Lord Flipper]

whoa, yeah, right again. You see what I mean? It's been a while. I traded my own account in a strict diet of selling naked calls, so my view is warped by the up/downtick rule, associated with the sell side. Thanks for pointing that out.

Re:Let's piss off investors and potential sharehol

[Tekzel]

Guess I will have to help out the person that modded my post offtopic, since they obviously are clueless. My response expressed my experience with the subject at hand. It demonstrated the poor experience I got with said subject, and also how I was able to choose a competing service and get better experience. If this experience is typical it can explain the drop in share price so quickly. Now, how is that off topic? Normally the mods on here matter not to me, but in this particular case the sheer stupidity of it just confuses me.

Re:Let's piss off investors and potential sharehol

[nelsonal]

I think more and more of the general public is realizing that experts might not be as expert as we thought (and that good amateurs are usually just as good with less bias in their advice). There are lots of valid reasons for a company to hedge its exposure (even if they expect the value could continue to increase).

I had fun reading "Conspiracy of Fools", especially the risk modelers were freaking out about Enron's potential demise about 2 years before anything really bad had happened. If you were looking for a fun summer read, you might enjoy it.