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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."
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.
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