A class action lawsuit was filed on Friday in the United States District Court for the District of New Jersey, on behalf of those who invested in Vonage's $531 million initial public offering on May 24.
The complaint, filed by US law firm, Motley Rice LLC, alleges that the Company and certain named officers and underwriters violated the federal securities laws by publishing a materially false and misleading joint Registration Statement and Proxy-Prospectus.
Vonage provides broadband telephone services in the United States, Canada, and the United Kingdom, primarily using voice over Internet protocol technology.
Prior to its IPO in late May, the firm had spent hundreds of millions of dollars to market its services to potential customers. However, the complaint alleges that both the company and company insiders, who had invested hundreds of millions of dollars of their personal funds in the company, were losing money.
According to Motley Rice, these Vonage insiders were "desperate to execute an exit strategy for themselves", and embarked on an illegal course of conduct to sell shares of the company in a public market.
The complaint further alleges that the defendants, realizing that institutional investors who normally buy in IPOs would be reluctant to purchase Vonage shares as-priced, pre-sold at least 13.5% of the company’s IPO shares to company customers in violation of NASD Rule 2310.
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 that the defendants had no such reasonable basis in this case and "improperly crammed investors into the Vonage IPO regardless of their suitability".
The action seeks to recover damages on behalf of all persons who purchased or otherwise acquired Vonage stock and suffered a loss as a result.
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