Vonage Sued Over IPO Debacle
After a disastrous initial public offering, Vonage was sued on Friday in United States District Court for the District of New Jersey. The class action lawsuit was filed on behalf of shareholders by the Atlanta-based law firm Motley Rice.
Vonage priced its stock at $17 per share when it debuted on the New York Stock Exchange on May 24. However, within the first day of trading the stock lost about 10 percent of its value. As of Monday morning, the stock was trading at $12.31, up 33 cents but down close to 30 percent from its IPO price.
The suit centers on Vonage's unusual offering of IPO stock directly to its customers. Lawyers say this was a move to ensure the sales of stocks after it became apparent that the company may be a hard sale to institutional investors.
Furthermore, they say that the IPO was pushed for by both the company and its investors as a way to recoup losses. Vonage, while the nation's largest VoIP provider, has never turned a profit.
Shareholders who had agreed to buy stock are now having second thoughts, with some even threatening not to pay for shares purchased. Vonage responded last week, saying its customers were "obligated to purchase their share allocation from the underwriters."
Motley Rice has encouraged investors and customers who bought shares through the program to explore their legal options. The firm said that Vonage's actions are directly tied to the loss in share price.
"The decline in value of these shares has been substantially exacerbated by many Vonage customers who participated in the pre-sale now refusing to pay for their shares," it said in a statement.
Vonage is accused of breaking several laws, including one that says it "must have a reasonable basis for believing that the recommendation [of buying shares] is suitable for the customer," as well as publishing a materially false and misleading joint Registration Statement and prospectus.
The suit also names the underwriters of the offering as defendants, which include Deutsche Bank, Citgroup and UBS.