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What if:

  • Vonage's customers refuse to pay for their IPO allocations;
  • The investment banks, indemnified by Vonage, refuse to sue them;
  • Vonage also decides not to sue its own customers;
  • So Vonage charges its customers for the stock at the current price, about $12 per share, rather than the IPO price of $17. (Picture above: woman being told she won't have to pay $17 per share.)
  • But the institutions that purchased the stock in the IPO then demand a similar discount themselves;
  • Vonage settles for a lower effective IPO price, and refunds millions of dollars.
  • But Vonage's share price continues to fall, with no clear valuation metric to hold up the stock. (After all, the company's not profitable.)
  • So the customers and institutions demand further refunds, starting the whole process again.

Vonage will have less cash on its balance sheet, terrible publicity, angry customers and a sliding stock price.

Don't own it.

Source: A Vonage Nightmare (VG)