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Vonage facing suit over IPO [06/08/2006]
HOLMDEL, N.J. (DowJones/AP) _ Vonage Holdings Corp. is the target of a class action lawsuit filed Friday that claims the Internet phone company improperly steered consumers toward investing in its $531 million initial public offering, according to a statement issued by the law firm Motley Rice LLC.

Shares of the Holmdel Internet phone startup have plunged more than 30 percent since the much-anticipated IPO May 24.

The company, which has been a high-profile hit with consumers, took the unusual step of setting aside 4.2 million IPO shares priced at $17 for customers.

Some disgruntled investors _ who have said the IPO process was flawed and the stock was overpriced _ plan to withhold payment for the stock.

The suit, filed in U.S. District Court in New Jersey, claims Vonage tried to compensate for a lack of interest among sophisticated institutional investors who usually dominate IPOs by selling shares to consumers, according to the statement.

The suit contends that Vonage and its underwriters violated a securities law that "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 statement said. Vonage, "had no such reasonable basis in this case and improperly crammed investors into the Vonage IPO regardless of their suitability," according to the statement.

A Vonage spokesman did not immediately return Associated Press calls for comment on Sunday.


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