Vonage Holdings Corporation - Securities Class Action

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Stanford Law School

Vonage Holdings Corporation Summary: The Complaint alleges 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 (the "Prospectus"). The Company provides broadband telephone services in the United States, Canada, and the United Kingdom, primarily using voice over Internet protocol technology. Prior to the Company's Initial Public Offering ("IPO") on May 24, 2006, the Company had spent hundreds of millions of dollars to market its services to potential customers. However, the Complaint alleges, 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 the Complaint, these Company insiders, desperate to execute an exit strategy for themselves, embarked on an illegal course of conduct to sell shares of the Company in a public market.

The Complaint further alleges that, Defendants, 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 the Company's IPO shares to Company 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 Defendants had no such reasonable basis in this case and improperly crammed investors into the Vonage IPO regardless of their suitability.

The Complaint also contends that the Underwriter Defendants violated the securities laws because they allowed this illegal and improper action to continue. The Underwriter Defendants, the Plaintiff claims, had an obligation to ensure that Vonage had complied with NASD Rule 2310 in setting up and administering the accounts of customers purchasing in the IPO. According to the Complaint, however, the Underwriter Defendants had little or no incentive to ensure that customer participants in the IPO were suitable. Instead, the Complaint also alleges they were motivated by the tens of millions of dollars in fees they would receive from a successful IPO. Furthermore, according to the Complaint, Vonage had agreed to indemnify the Underwriter Defendants against certain liabilities relating to the customer pre-sale program; among those liabilities was the foreseeable possibility that customers who purchased in the IPO would refuse or fail to pay for the common stock allocated to them in the pre-sale.

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.

According to the Company’s Form 10-Q For the Quarterly Period Ended September 30, 2006, during June 2006 and July 2006, Vonage, several of its officers and directors, and the firms who served as the underwriters in Vonage’s IPO were named as defendants in Lang v. Vonage Holdings Corp. et al., a purported class action lawsuit filed in the United States District Court for the District of New Jersey. Subsequently, several similar purported class action lawsuits were filed in the United States District Court for the District of New Jersey, one was filed in the United States District Court for the Southern District of New York and another was filed in the Supreme Court of the State of New York and subsequently removed to the United States District Court for the Eastern District of New York. The complaints assert claims under the federal securities laws on behalf of a professed class consisting of all those who were allegedly damaged as a result of acquiring the Company’s common stock in connection with its IPO. The complaints allege, among other things, that the Company omitted and/or misstated certain facts concerning the IPO’s Customer Directed Share Program. Some complaints also allege the IPO prospectus contained misrepresentations or omissions concerning certain of its products and/or the prior experience of some of its management. One complaint (Inouye v. Vonage Holdings Corp. et al.), which was filed in the United States District Court for the Southern District of New York and subsequently voluntarily dismissed, included an allegation of open market securities fraud during a purported class period of May 24, 2006 to June 19, 2006 in addition to claims arising out of the IPO. Although Lang, Inouye and one other complaint were voluntarily dismissed, the Company expects the remaining complaints to be consolidated at some time in the future.

According to a press release dated July 31, 2007, a federal judge in New Jersey has agreed to consolidate 14 purported class action cases that accuse Vonage Holdings Corp. of making false statements with the U.S. Securities and Exchange Commission prior to its initial public offering. Judge Freda L. Wolfson of the U.S. District Court for the District of New Jersey granted shareholder Centurion Securities LLC's motion to consolidate the cases against the Internet phone company on July 26. In January, the Judicial Panel on Multidistrict Litigation centralized the cases for pretrial proceedings in the New Jersey court. Wolfson has yet to rule on Centurion's request to be appointed lead plaintiff and to select Berger & Montague PC as lead counsel.

Plaintiffs filed their first Consolidated Class Action Complaint on November 19, 2007. Defendants moved to have the case dismissed on April 2, 2008.

According to the Company’s Form 10-Q for the Quarterly Period Ended June 30, 2009, on April 6, 2009, the Court hearing the matter dismissed three claims with leave to amend two of them, and declined at such time to dismiss two of the other claims. On April 20, 2009, the plaintiffs filed a motion asking the Court to reconsider the partial dismissal of their claims. On June 3, 2009, the Court granted-in-part and denied-in-part plaintiffs’ motion for reconsideration. On June 16, 2009, Vonage and plaintiffs reached an agreement in principle to settle the litigation, which will include a release and dismissal of all stockholder claims against Vonage and its individual directors and officers who were named as defendants. The settlement is subject to final documentation and Court approval. The settlement will be funded by our liability insurance under our directors and officers liability insurance policy.

The Settlement Hearing was held on December 4, 2009. That day, Judge Freda L. Wolfson approved the settlement and granted the motion for attorney fees. The civil case is now terminated.

On April 1, 2011 the Court issued an Order Approving Distribution Of The Net Settlement Fund.

INDUSTRY CLASSIFICATION:
SIC Code: 4813
Sector: Services
Industry: Communications Services

COMPANY/ISSUER NAME:	Vonage Holdings Corporation
COMPANY/ISSUER TICKER:	VG
COMPANY WEBSITE:	http://www.vonage.com

FIRST IDENTIFIED COMPLAINT IN THE DATABASE

Roy Bradley Lang, III, et al. v. Vonage Holdings Corporation, et al.

COURT: D. New Jersey	DOCKET NUMBER: 06-CV-02500
JUDGE NAME: Hon. Stanley R. Chesler
DATE FILED: 06/02/2006	SOURCE: Notice of Filing
CLASS PERIOD START: 05/24/2006	CLASS PERIOD END: 05/31/2006
TYPE OF COMPLAINT: Complaint (Unamended and Unconsolidated)
PLAINTIFF FIRMS NAMED IN COMPLAINT:
Berger & Montague PC 1622 Locust Street, Philadelphia, PA, 19103 (voice) 800.424.6690, (fax) 215.875.4604, investorprotect@bm.net Kahn Gauthier Swick, LLC (New Orleans) 650 Poydras St. Suite 2150, New Orleans, LA, 70130 (voice) 504.455.1400, (fax) , lewis.kahn@kglg.com Law Offices of Charles J. Piven, P.A. World Trade Center-Baltimore,401 East Pratt Suite 2525, Baltimore, MD, 21202 (voice) 410.332.0030, (fax) , pivenlaw@erols.com Law Offices of Charles J. Piven, P.A. World Trade Center-Baltimore,401 East Pratt Suite 2525, Baltimore, MD, 21202 (voice) 410.332.0030, (fax) , pivenlaw@erols.com Lerach Coughlin Stoia Geller Rudman & Robbins LLP (Melville) 58 South Service Road, Suite 200, Melville, NY, 11747 (voice) 631.367.7100, (fax) 631.367.1173, Motley Rice LLC (Atlanta) One Georgia Center; 600 West Peachtree Street, Suite 800, Atlanta, GA, 30308 (voice) 1-800-768-4026, (fax) , inquiry@motleyrice.com Pomerantz Haudek Block Grossman & Gross LLP (New York) 100 Park Avenue, 26th Floor, New York, NY, 10017-5516 (voice) 212.661.1100, (fax) 212.661.8665, info@pomerantzlaw.com/ Schiffrin & Barroway LLP 3 Bala Plaza E, Bala Cynwyd, PA, 19004 (voice) 610.667.7706, (fax) 610.667.7056, info@sbclasslaw.com Spector, Roseman & Kodroff (Philadelphia) 1818 Market Street; Suite 2500, Philadelphia, PA, 19103 (voice) 215.496.0300, (fax) 215.496.6610, classaction@srk-law.com Stull, Stull & Brody (New York) 6 East 45th Street, New York, NY, 10017 (voice) 310.209.2468, (fax) 310.209.2087, SSBNY@aol.com Wechsler Harwood, LLP. 488 Madison Avenue 8th Floor, New York, NY, 10022 (voice) 212.935.7400, (fax) 212.753.3630, info@whesq.com _____________________________________________ TOTAL NUMBER OF PLAINTIFF FIRMS: 11

DOCUMENTS FOR THE FIRST IDENTIFIED COMPLAINT
Class Action Complaint for Violations of Federal Securities Laws - Jury Trial Demanded
Type: Complaint		Date on the document: 06/02/2006
U.S. District Court Civil Docket
Type: Docket		Date on the document: 09/26/2006

REFERENCE COMPLAINT

In Re Vonage Initial Public Offering Securities Litigation

COURT: D. New Jersey	DOCKET NUMBER: 07-CV-00177
JUDGE NAME:
DATE FILED: 11/19/2007	SOURCE: Docket
CLASS PERIOD START: 05/24/2006	CLASS PERIOD END: 05/31/2006
TYPE OF COMPLAINT: Complaint (Unamended and Unconsolidated)
PLAINTIFF FIRMS NAMED IN COMPLAINT:
Saxena White PA (Boca Raton) 2424 N. Federal Highway, Suite 257, Boca Raton, FL, 33431 (voice) 561.394.3399, (fax) 561.394.3399, _____________________________________________ TOTAL NUMBER OF PLAINTIFF FIRMS: 1

DOCUMENTS FOR THE REFERENCE COMPLAINT
Transfer Order
Type: Order		Date on the document: 01/12/2007
Order
Type: Order		Date on the document: 07/27/2007
Opinion
Type: Order Appointing LP/LC		Date on the document: 09/07/2007
Consolidated Amended Class Action Complaint
Type: Complaint		Date on the document: 11/19/2007
Opinion
Type: Order		Date on the document: 04/02/2009
Order
Type: Order		Date on the document: 04/02/2009
Stipulation of Settlement
Type: Settlement		Date on the document: 08/17/2009
Order Preliminarily Approving Settlement, Approving Notice, and Scheduling Fairness Hearing
Type: Order		Date on the document: 08/25/2009
Declaration Of Robin F. Zwerling In Support Of Plaintiffs' Unopposed Application For Preliminary Approval Of Settlement
Type: Declaration		Date on the document: 09/01/2009
Memorandum Of Law In Support Of Plaintiffs’ Unopposed Application For Preliminary Approval Of Settlement
Type: Memorandum		Date on the document: 09/01/2009
Notice Of Pendency And Proposed Settlement Of Class Action
Type: Notice		Date on the document: 09/15/2009
Proof of Claim and Release
Type: Other		Date on the document: 09/15/2009
Judgment And Order Of Dismissal With Prejudice
Type: Order		Date on the document: 12/04/2009
Order Granting An Award Of Attorneys' Fees, Reimbursement Of Expenses And Award To Settling Plaintiffs
Type: Order Approving AF&E		Date on the document: 12/04/2009
U.S. District Court Civil Docket
Type: Docket		Date on the document: 12/04/2009
Order Approving Distribution Of The Net Settlement Fund
Type: Order		Date on the document: 04/01/2011

OTHER DOCUMENTS
Class Action Complaint - Jury Trial Demanded
Case Name and/or Number: Gibbons, et al. v. Vonage Holdings Corporation, et al.
Type: Complaint		Date on the document: 06/06/2006
Class Action Complaint - Jury Trial Demanded
Case Name and/or Number: Marvin and Alice Wong, et al. v. Vonage Holdings Corporation, et al.
Type: Complaint		Date on the document: 06/12/2006
Class Action Complaint - Jury Trial Demanded
Case Name and/or Number: Mark Goldman, et al. v. Vonage Holdings Corporation, et al.
Type: Complaint		Date on the document: 07/05/2006
Class Action Complaint for Violations of Federal Securities Laws - Demand for Jury Trial
Case Name and/or Number: Keith Inouye, et al. v. Vonage Holdings Corporation, et al.
Type: Complaint		Date on the document: 07/17/2006
U.S. District Court Civil Docket
Case Name and/or Number: Inouye, et al. v. Vonage Holdings Corporation, et al.
Type: Docket		Date on the document: 08/29/2006
U.S. District Court Civil Docket
Case Name and/or Number: Newborn, et al. v. Vonage Holdings Corporation, et al.
Type: Docket		Date on the document: 10/03/2006
U.S. District Court Civil Docket
Case Name and/or Number: Rovner, et al. v. Vonage Holdings Corporation, et al.
Type: Docket		Date on the document: 10/04/2006
U.S. District Court Civil Docket
Case Name and/or Number: Gibbons, et al. v. Vonage Holdings Corporation, et al.
Type: Docket		Date on the document: 07/27/2007

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