Complain about a product or service

Vonage Accused Of Violating Securities Laws

By Mark Huffman
ConsumerAffairs.com

June 5, 2006

Vonage • Appeals Court Gives Vonage a Reprieve • Vonage CEO Exits as Company Struggles to Survive • Vonage Gets a Reprieve but its Future is Murky • Judge Orders Vonage to Stop Signing New Customers • Class Action Charges Vonage Deceived Consumers • Vonage Settles New Jersey Charges • FTC Drops Vonage 911 Inquiry But Continues Telemarketing Probe • Vonage Accused Of Violating Securities Laws • Vonage Customers Chafe Under Stock Purchase Plan • Vonage IPO Fails To Meet Expectations • Vonage 911 Caller Put On Hold While House Burns Down • Consumer Complaints

The black cloud continues to hang over Internet telephone provider Vonage. In the midst of complaints about its 911 emergency access and a disastrous Wall Street debut, Vonage now faces a class action lawsuit accusing it of violating securities laws and improperly selling shares to customers.

The suit charges that Vonage's plan to allow its customers to purchase stock in last month's Initial Public Offering, was against the law.

The plan subsequently backfired, when Vonage stock opened for trading at $17 and promptly plunged to $12. Most customers who committed to buying shares at $17 balked when it came time to write the check.

On May 23, Vonage filed an amended statement with the Securities and Exchange Commission, raising the possibility it might have committed technical errors in the handling of the IPO. Specifically, it warned that the errors might require Vonage to repurchase shares purchased by customers at the IPO price.

The lawsuit, filed by some existing shareholders, claims Vonage tried to engineer the illegal stock sales to its customers because it knew there would not be enough institutional demand for its shares.

The complaint further alleges that Vonage realized that institutional investors who normally buy IPOs would be reluctant at best to purchase Vonage shares as priced and therefore pre-sold at least 13.5 percent of the company's IPO shares to Vonage customers in violation of securities rules.

NASD Rule 2310 requires that a company recommending the purchase or sale of its securities to a customer must have a reasonable basis for believing that the recommendation is suitable for the customer.

The complaint also alleges Vonage executives had no such reasonable basis in this case and improperly crammed investors into the Vonage IPO regardless of their suitability.

Report Your Experience
If you've had a bad experience -- or a good one -- with a consumer product or service, we'd like to hear about it. All complaints are reviewed by class action attorneys and are considered for publication on our site. Knowledge is power! Help spread the word. File your consumer report now.