The parade of law firms filing securities-related class action lawsuits against Vonage is getting longer.
Wednesday saw two more. Each one of these is worth a post, and that's what you'll get.
In this post, I'll review what has been charged in the Berger & Montague complaint. Then I will offer my take- not from a legal perspective (I'm no lawyer) but as one who has been following Vonage closely, gets paid to do it, and has been, in fact, a two-line, two-account, Vonage customer for more than a year now.
Berger & Montague, P.C. alleges that Vonage's IPO Prospectus didn't shoot straight about Vonage's products, services, management background, Directed Share Program, or the IPO itself. Here's four key points made in the Berger & Montague complaint:
Plaintiff alleges that Defendants:
Misstated that Vonage’s products and technology would work generally across all Internet providers when, in fact, Vonage’s technology platform has experienced numerous deficiencies carrying data over the networks of certain Internet service providers such as Time Warner Inc.’s AOL unit;
Misstated that Vonage’s technology was sufficient to accommodate properly facsimile transmissions when, in fact, the Company uses an unreliable computer network protocol that results in faxes not being transmitted properly;
Failed to disclose adequately important facts regarding certain of its senior management team, including that CEO (Michael) Snyder had overseen Tyco’s ADT Security division at a time when accounting improprieties in that division led Tyco to take a $600 million accounting charge, among other things, and that CFO Rego had been a senior financial officer of Winstar Communications when that company had allegedly engaged in securities fraud, accounting improprieties and false revenue recognition practices, and ultimately filed for bankruptcy; and
Misrepresented key aspects of Vonage’s IPO process including the timing of when shares would be delivered, Class members’ ability to transact in the shares, and that Vonage’s Customer Directed Share Program would be “centrally administered" and work properly, among other things.
Now, I will tell you what I think.
Berger & Montague seem to be saying that Vonage was not totally on the up-and-up about some technical failings, as well as what is said to be not the best record of corporate citizenship on the part of their CEO.
It seems to me that the fax delivery failures and incompatibilities with Time Warner Cable's Internet access service would, if endemic, have caused massive numbers of Vonage customers to quit the service in disgust. I searched the independently owned and operated Vonage Forum for threaded discussions pointing to these woes, and found few incidents.
There have been more reports about inconsistencies with Comcast, but here's my point. Given that Time Warner Cable and Comcast are the two largest cable broadband access service providers, shouldn't there be tens of thousands of refugees from Vonage, and not just scattered reports? Scattered reports from Vonage customers, some of whom seem to be wanting to resolve these issues rather than walk off in a huff feeling they were misled?
I don't have the legal background to decide whether or not the Prospectus should have carried mention of these apparently scattered incidents- and more importantly, how wisespread these reports needed to be to mandate inclusion into an investment Prospectus.
I do have to wonder if, in the process of compiling this complaint, whether or not researchers hit the user boards, looked at complaints, checked the Prospectus for their inclusion, and red-flagged them when they were not found.
And as to the language pertaining to the executive background of Vonage CEO Michael Snyder, there's the issue of whether or not being an executive accused of being prominent in ethically questioned companies is discloseable if the executive in question was not directly charged by the legal system with any breach of conduct.
If this lawsuit were to come to a jury trial and I was a member of the jury, I would eagerly anticipate vigorous in-court discussion about whether or not it is considered mandatory for a Prospectus to reveal the filing company's CEO's prior proximities to the type of conduct described here- even if the CEO was not convicted or charged with any infractions.
I am "only a blogger," and am not a legal expert. It will be interesting, though, to see what the legal experts on all sides say and how this one plays out.