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Vonage Won't Reimburse Customers Participating in IPO
[June 01, 2006]

Vonage Won't Reimburse Customers Participating in IPO

Executive Editor

Sitting back in his midtown office on Tuesday evening, Jim Pavoldi reflected back to the days when he used to be a stockbroker at a financial services firm.  Now a technology executive, he thought aloud: “I have been too busy to track much news on it – is it really that bad?”


In fact, Pavoldi was many things in a previous life, among them a VoIP user and customer of the Vonage (News - Alert) phone service company. He met the criteria set forth by Vonage Holdings in its Directed Share Program, a unique program to set aside 13.5 percent of the 31.25 million shares sold in its initial public offering for anyone who were customers between Dec. 15, 2005, and February 1, 2006. But because he was so busy, he never completed the paperwork.


“Thank goodness,” Pavoldi said.


“I can’t believe it got beat up so quickly…I heard people are DK’ing their brokers,” he said, referring to the practice when customers claim they “Don’t Know” about specific trades if the stock they bought tanks before the settlement date.


And Vonage’s stock has certainly done just that. Since going public at $17 last week, the stock has yet to end a trading session higher as of today. It now stands just above $12. The drop sparked speculation earlier this week that Vonage would let customers renege on those stock trades.


The speculation was fueled by a caveat in Vonage’s IPO prospectus that detailed its intention to cover the underwriters’ costs if customers refused to pay. That was further reinforced by comments released to CNBC on Sunday that Vonage didn’t want to alienate its customers.


But late last night (and breaking from tradition as most newly public companies rarely comment on their stock activity), Vonage released a statement “to clarify the company's position as previously represented in various media outlets.”


“Pursuant to the terms and conditions of our Customer Directed Share Program, if a customer was allocated shares in the Customer Directed Share Program, that customer is obligated to purchase their share allocation from the underwriters. To be clear, we have not offered and are not offering to repurchase any of the shares of common stock from our customers,” the company said.


No word yet on any shareholder litigation or purported class actions filed against the company or its underwriters in connection with the IPO; however, given historical trends, any such lawsuits are inevitable.


In the meantime, Vonage continues to forge ahead building out its business fundamentals. The company announced a marketing partnership with router and networking company D-Link on a Voice Terminal Adaptor (VTA) configured to the Vonage service. The company also updated its e911 tally to 80 percent.




Robert Liu is Executive Editor at TMCnet. Previously, he was Executive Editor at Jupitermedia and has also written for CNN, A&E, Dow Jones and Bloomberg. For more articles, please visit Robert Liu's columnist page.

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