Vonage IPO...

I wrote about this impending doom in February.  Vonage was never ready, nor did it have a good model to get profitable.  On with the lawyers.  Can't say I didn't warn you.

 Vonage IPO Woes Continue
By   Ed Sutherland
June 5, 2006

And now come the lawsuits.

First came Vonage's IPO, which was followed by a 30 percent tumble in the price. Then Vonage threatened to sue customers who got cold feet on buying into the IPO. Now the embattled VoIP provider faces a class-action lawsuit charging customers were "crammed into the Vonage IPO regardless of their suitability."

Investors were damaged by mistakes made by Vonage (Quote, Chart) and the IPO  underwriters, according to the lawsuit filed on Friday in a New  Jersey federal court. The lawsuit alleges a desperate Vonage and  underwriters, motivated by millions in fees, violated stock security rules.

The mistakes "decimated the price of company shares" and  "investors saw almost $200 million, or 30 percent of their investment  in the company, eviscerated," according to the lawsuit.

"We have no comment for now," Vonage spokesperson Mitchell Slepian told  internetnews.com.

The Internet phone company "embarked on an illegal course of  conduct to sell shares," according to a statement. The law firm  characterized Vonage executives, seeing the company lose money,  "desperate to execute an exit strategy for themselves.

The suit follows a warning by Vonage that customers who took part  in the "Directed Share" program are "obligated to purchase their  share allocation from the underwriters."

The VoIP company also is not  offering to buy back any shares, according to the statement.

Vonage customers who bought stock prior to the IPO for $17 per  share saw the stock open and then quickly drop to as low as $11.52.    At mid-morning today, the stock was selling at $12.38.

Some 10,000 Vonage customers bought shares at the pre-IPO price.

In the most recent lawsuit, Atlanta, Georgia-based Motley Rice  LLC, charges Vonage sold 13.5 percent of the IPO stock to its  customers without an understanding the stock was suitable, violating  NASD rule 2310.

Vonage "had no reasonable basis in this case and improperly  crammed investors into the Vonage IPO regardless of their  suitability," charged the law firm in a statement.

Customer-participation in IPOs brings potential headaches. Key to a successful IPO is doing it right and  maintaining control.

"Unfortunately, Vonage has gotten none of that,"  said Tom Taulli, a University of Southern California finance professor and  author of "Investing in IPOs."

Vonage had amended its May 22 SEC filing, noting its IPO may have  included errors. The amendment followed complaints from customers  confused by how they were notified and stymied in efforts to links to  the prospectus.

The VoIP player also indemnified the IPO underwriters in case of  problems with the customer purchase program, a move noted in the  class-action lawsuit.

"Motivated by the tens of millions of dollars in fees" and having  "little or no incentive to ensure that customer participants in the  IPO were suitable," the IPO underwriters violated NASD rules  governing accounts of customer purchases in initial public offerings, according  to the complaint.

Although little comfort, Vonage rival Skype also found itself the  target of a patent-infringement lawsuit.

According to published reports, Net2Phone, which is owned by IDT Corp., sued Skype and named eBay, Skype's parent, as a defendant.

"We've not yet been served, so we can't comment on the lawsuit," a  Skype spokesperson said. EBay and Net2Phone did not respond to  requests for comment.

Net2Phone customers include cable companies offering Internet  phone service.

In the lawsuit, filed in the U.S. District Court of Newark, N.J.,  Net2Phone requests an injunction stopping what in court documents it  believes could be "irreparable harm."

At the heart of the legal action is Skype's use of point-to-point  technology enabling the VoIP service to connect devices and exchange  IP addresses.

In May, StreamCast Networks, owner of the Morpheus file-exchange  service, also sued Skype and others for patent infringement.

Like  the Net2Phone suit, StreamCast asked for an injunction of Skype sales  and marketing.