About the only thing Wall Street likes better than a story about overpaid investment bankers is one about red-faced lawyers. And what looked like one turned into the other this week, as I dug into the filing of the first class-action suit stemming from Vonage's May 23 IPO.
In federal court filings, plaintiff’s firm Motley Rice LLC claimed underwriters led by Citigroup took 17% of the $531 million deal as fees -- more than double the usual 7%. The charge was so shocking Motley Rice made it in bold italics:
Investors were willing to and did pay these large underwriting fees...because investors believed that such fees were being paid, in substantial part, to assure that the underwriters had conducted a thorough analysis of the transaction.
Indeed, the suit says, investors paid more for extra due diligence because Vonage chairman Jeff Citron has a sketchy history with the SEC and was a pal of disgraced, imprisoned stock promoter Robert Brennan (Citron lives in Brennan's old house, according to published reports). Horrors! Investment banks that don't do due diligence!
Invited to to explain their math, though, Motley Rice ‘fessed up to its own due-diligence slip: The charge was a typo. Underwriters were actually paid a little over 7%. Motley Rice insisted the goof won’t affect the case. “The whole gist is that the IPO was bungled,“ lawyer James E. Evangelista tried to explain. Oh sure.
But you know how sympathetic people get when lawyers screw up. “Unfortunately, I’m not allowed to comment but I do appreciate the good laugh,” Citigroup spokeswoman Danielle Romero said. And so Motley Rice is left to ponder an old rule of business: There are no typos, ony thinkos.
Signing off, I'm Timothy J. Mullaney -- J.D.