Thursday, February 09, 2006

Skeletons Included: The Vonage IPO

Vonage filed its S-1 with the SEC yesterday.

We wouldn't touch this business with a 20 ft. pole.

True, Vonage has been booking new subscribers hand over fist, but they've also been hemorrhaging money.

Vonage lost $300M in 3 years.

But, maybe, deep down we just don't like Vonage because we'd never leave our kids alone with a guy like Jeff Citron.

God knows how many more skeletons this guy keeps in his closet.

From the S-1, if you will:
The past background of our founder, Jeffrey A. Citron, may adversely affect our ability to enter into business relationships and may have other adverse effects on our business. Prior to joining Vonage, Mr. Citron was associated with Datek Securities Corporation and Datek Online Holdings Corp. During a portion of the time Mr. Citron was associated with Datek Securities, the SEC alleged that Datek Securities, Mr. Citron and other individuals participated in an extensive fraudulent scheme involving improper use of the Nasdaq Stock Market's Small Order Execution System, or SOES.

There is a risk that some third parties will not do business with us, that some prospective investors will not purchase our securities or that some customers may be wary of signing up for service with us as a result of allegations against Mr. Citron and his past SEC and NASD settlements. We believe that some financial institutions and accounting firms have declined to enter into business relationships with us in the past, at least in part because of these matters. Other institutions and potential business associates may not be able to do business with us because of internal policies that restrict associations with individuals who have entered into SEC and NASD settlements. While we believe that these matters have not had a material impact on our business, they may have a greater impact on us when we become a public company, including by adversely affecting our ability to enter into commercial relationships with third parties that we need to effectively and competitively grow our business.

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