Vonage might have mislead investors in its IPO and violated NASD rules by offering its IPO shares to Vonage customers.

This is a security fraud class action lawsuit against Vonage Holdings and certain named officers and underwriters. This class action lawsuit alleges that Vonage violated the federal securities laws by publishing a materially false and misleading statements during its IPO.

Vonage provides broadband telephone services in the United States, Canada, and the United Kingdom, primarily using voice over Internet protocol technology. Prior to Vonage's Initial Public Offering ("IPO") on May 24, 2006, Vonage had spent hundreds of millions of dollars to market its services to potential customers. However, the class action complaint alleges, both Vonage and Company insiders, who had invested hundreds of millions of dollars of their personal funds in Vonage, were losing money. According to the complaint, these Company insiders, desperate to execute an exit strategy for themselves, embarked on an illegal course of conduct to sell shares of Vonage in a public market.

The Complaint further alleges that, Vonage, realizing that institutional investors who normally buy in IPOs would be reluctant at best to purchase Vonage shares as-priced, pre-sold at least 13.5% of Vonage's IPO shares to Vonage customers in violation of NASD Rule 2310. NASD 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 Vonage had no such reasonable basis in this case and improperly crammed investors into the Vonage IPO regardless of their suitability.

As a result of this alleged illegal conduct, shares of Vonage sold in the IPO declined more than 30% in the first seven trading days. The decline in value of these shares has been substantially exacerbated by many Vonage customers who participated in the pre-sale now refusing to pay for their shares.