- 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.