Are Vonage's collection efforts justifiable? Legally,yes; strategically, no

Over the last few days, quite a few folks who signed up for the Vonage IPO but have refused to pay for their shares have been receiving "pay up" warning letters from Vonage. They are being told to pay up within 10 days or risk legal action.

Over the last few days, quite a few folks who signed up for the Vonage IPO but have refused to pay for their shares have been receiving "pay up" warning letters from Vonage. They are being told to pay up within 10 days or risk legal action.

Vonage said last month that the total number of shares it believes are unpaid is around one million.

There are two ways to look at this.

Are these collection efforts legally justified?

Are tese collection efforts justifiable from an ROI standpoint?

I'm a blogger, not a lawyer, but I seem to recall some quite adequate language in the Vonage IPO noting the varied risks involved. Of course, when the stock started to dip significantly below IPO levels, a lot of investor delusions were shaken to the core. That's where the enabling attorneys came in, throwing all sorts of suits at Vonage. There were 17 in all, I believe.

Shares of Vonage closed Tuesday at $7.55 a share. That's down 56 percent from the initial offering price of $17. But there was not a clause in the IPO that said that if shares dip below a certain amount, you don't have to pay.

But then we get into the ROI thing.

If, by some miracle, Vonage winds up collecting, say two-thirds of the million shares it believes it is owed, that's maybe $10 million in the coffers.

But I have to balance that against the legal expenses, and the potential loss of revenue from potential subscribers who will be put off signing up with a company that sues its customers.

Not only that, but let us say that a number of current Vonage users are among those sued. Pissed off, I am sure they will bail.

"Any of us still Vonage customers? Yes probably, I will definitely consider switching to a competitor after this," writes Vonage Forum Member am2782 on a Vonage Forum thread devoted to the issue.

If they are paying, say, $250 a year to Vonage, and 3,000 bail, that may be only $750,000. But then that's when "the bastards say they will sue me" effect comes in. And with Vonage users Net-savvy, communications-inclined influencers, they can spread the bad word among their friends.

Before too long, that $10 million gained is quickly offset by lost revenue from former subscribers and those who might have joined but didn't because they were put off by what they viewed as heavy-handed tactics.