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."

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?

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).

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.

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: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 [washingtontimes.com], both are of course part of the same company.
It just goes to show that too many suits 'Sue first, think later'.

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.

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: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 [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.

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.

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.

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

[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.