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Vonage Vows to Pursue Customers Who Renege on IPO 200

Posted by samzenpus
from the or-else dept.
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."
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Vonage Vows to Pursue Customers Who Renege on IPO

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  • by rbanzai (596355) on Thursday June 01, 2006 @04:39AM (#15443083)
    I hope the bigwigs at Vonage held off on those Ferraris they were planning to buy... :D
    • by OlivierB (709839) on Thursday June 01, 2006 @04:57AM (#15443118)
      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.
      • 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.
        • 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 uncomm
      • 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 opti
  • 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.
    • 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.
      • 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.
        • by bastion_xx (233612) on Thursday June 01, 2006 @07:32AM (#15443671)
          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.
          • 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.

          • 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.
            • 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....

        • by bobwoodard (92257) on Thursday June 01, 2006 @07:58AM (#15443825)
          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.
          • 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.
    • by Andy_R (114137) on Thursday June 01, 2006 @05:48AM (#15443257) Homepage Journal
      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.
      • 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 Inte
      • 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.
      • 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.
      • 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 ty

        • 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.

    • Not to mention, that these are also customers.
  • What? (Score:5, Interesting)

    by Don_dumb (927108) on Thursday June 01, 2006 @04:43AM (#15443089)
    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?
    • 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
      • Re:What? (Score:4, Informative)

        by spottedkangaroo (451692) * on Thursday June 01, 2006 @05:22AM (#15443190) Homepage
        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...

    • by nodwick (716348) on Thursday June 01, 2006 @05:41AM (#15443237)

      I submitted a story on this yesterday morning. Vonage went on CNBC Wednesday morning [nypost.com] 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 [thestreet.com] 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 [businessweek.com] might not look so good, and that screwing over their own customers in the IPO might be the last straw.

      • 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.

        • by tessaiga (697968) on Thursday June 01, 2006 @08:50AM (#15444233)
          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 [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.

    • Re:What? (Score:3, Insightful)

      by Marsala (4168)

      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

      • Re:What? (Score:5, Insightful)

        by Stone Pony (665064) on Thursday June 01, 2006 @06:59AM (#15443495)
        "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.

        • 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
    • Re:What? (Score:2, Insightful)

      by edxwelch (600979)
      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.
      • 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
  • by Anonymous Coward on Thursday June 01, 2006 @04:43AM (#15443090)
    Stuff that's Boring.
  • by syousef (465911) on Thursday June 01, 2006 @04:44AM (#15443092) Journal
    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).
    • by gowen (141411) <gwowen@gmail.com> on Thursday June 01, 2006 @04:56AM (#15443117) Homepage Journal
      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.
      • by nodwick (716348) on Thursday June 01, 2006 @05:49AM (#15443260)
        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 [thestreet.com] 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 [weekly.org]), this is going to generate a lot more negative PR with both their current customer base and potential future customers.

        • 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.
        • 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.
        • 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 actua
      • 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 q
      • 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 cu
    • 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 ;)

    • by Don_dumb (927108) on Thursday June 01, 2006 @05:01AM (#15443136)
      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 [washingtontimes.com], both are of course part of the same company.
      It just goes to show that too many suits 'Sue first, think later'.
    • Mettalica probably don't own any shares in anything , they prefer to sell out
  • Vonage IPO (Score:4, Interesting)

    by JWSmythe (446288) * <jwsmythe AT jwsmythe DOT com> on Thursday June 01, 2006 @04:45AM (#15443094) Homepage Journal
    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.
    • 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 a

      • 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.
      • I'm quite glad I didn't follow your advice during the RHAT and LNUX IPOs.
        • 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.
    • $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
  • by EsonLinji (723693) on Thursday June 01, 2006 @04:45AM (#15443095) Homepage
    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.
    • 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

      • 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 flo
    • 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
      • 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 lett
  • Joe Average Customer (Score:2, Interesting)

    by 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.
  • by tm2b (42473) on Thursday June 01, 2006 @05:15AM (#15443170) Journal
    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.
  • by leeum (156395) on Thursday June 01, 2006 @05:31AM (#15443213) Homepage Journal
    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 [sec.gov].
    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.

    • by ps (21245) on Thursday June 01, 2006 @06:21AM (#15443350)
      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
      • 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.
        • 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"
  • What is the problem? (Score:2, Interesting)

    by Super_Z (756391)
    [..] 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.
    • 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
  • 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.
    • > 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.

  • 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.
  • 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 tha

  • 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 wi
  • ...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...
  • 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.
  • by SilentJ_PDX (559136) on Thursday June 01, 2006 @07:11AM (#15443557) Homepage
    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 [wikipedia.org].
  • 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.
  • 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 onl
    • 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.
    • 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.
  • Worst. IPO. Ever. (Score:3, Insightful)

    by Paradise Pete (33184) on Thursday June 01, 2006 @07:35AM (#15443684) Journal
    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. (Score:4, Informative)

      by alexander_686 (957440) on Thursday June 01, 2006 @08:21AM (#15443989)
      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.
      • 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).

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

  • 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

  • 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.
  • 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.

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