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UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

__________________________________________ MARVIN AND ALICE WONG, Individually and On Behalf of All Others Similarly Situated,

Plaintiffs,

vs.

VONAGE HOLDINGS CORPORATION, JEFFREY A. CITRON, MICHAEL SNYDER, SHARON A. O’LEARY, BETSY S. ATKINS, PETER BARRIS, MORTON DAVID, ORIT GADIESH, J. SANFORD MILLER, HUGH PANERO, THOMAS J. RIDGE, JOHN J. ROBERTS, HARRY WELLER, CITIGROUP GLOBAL MARKETS, INC., DEUTSCH BANK SECURITIES, INC., UBS SECURITIES, LLC, BEAR, STEARNS & CO. INC., PIPER JAFFRAY & CO., and THOMAS WEISEL PARTNERS LLC,

Defendants. __________________________________________

) ))))))))))) ) ) ) ) ) ) ) ) ) ) )

CIVIL ACTION NO.

CLASS ACTION COMPLAINT JURY TRIAL DEMANDED

Plaintiffs, Marvin and Alice Wong, (collectively, “Plaintiffs”), allege the following based

upon the investigation by Plaintiffs’ counsel, which included, among other things, a review of

the defendants’ public documents, conference calls and announcements made by defendants,

United States Securities and Exchange Commission (“SEC”) filings, wire and press releases

published by and regarding Vonage Holdings Corporation (“Vonage” or the “Company”)

securities analysts’ reports and advisories about the Company, and information readily available

on the Internet, and Plaintiffs believe that substantial additional evidentiary support will exist for

the allegations set forth herein after a reasonable opportunity for discovery.

NATURE OF THE ACTION AND OVERVIEW

1. This is a federal class action on behalf of purchasers of the publicly traded

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common stock of Vonage who purchased or otherwise acquired Vonage common stock pursuant

or traceable to the Company’s May 23, 2006 Initial Public Offering (the “IPO” or the

“Offering”), seeking to pursue remedies under the Securities Act of 1933 (the “Securities Act”).

This claim is also being brought on behalf of Vonage customers who purchased or otherwise

acquired Vonage common stock through the Vonage Directed Share Program (the “Subclass”).

2. Vonage is a leading provider of broadband telephone services with over 1.6

million subscriber lines as of April 1, 2006. The Company’s award-winning technology enables

anyone to make and receive phone calls with a touch tone telephone almost anywhere a

broadband Internet connection is available.

3. The complaint alleges that, in connection with the Company’s IPO, defendants

failed to disclose: (1) that Vonage’s technology platform experienced problems carrying

telephone data over the networks of certain Internet service providers, including Time Warner

Inc’s AOL; (2) that Vonage’s voice-over-Internet protocol (“VoIP”) technology did not properly

allow facsimile transmissions; (3) that the Company did not adequately inform investors about

the history of Vonage’s management team; (4) specifically, that Vonage failed to disclose that

Tyco’s ADT Security division took $600 million in charges for accounting improprieties while

defendant Michael Snyder (“Snyder”) was President of the division; (5) that the Company did

not adequately inform Vonage customers that opened brokerage accounts and participated in

Vonage’s Directed Share Program concerning the customers’ obligations to purchase allocated

shares; (6) specifically, that Vonage customers that participated in the Directed Share Program

were obligated to purchase allocated shares before they received notice that their conditional

offers had been accepted, and were led to believe that the IPO would take place later than May

23, 2006.

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4. Immediately following the IPO, shares of Vonage plunged from the offering price

of $17.00 per share to close, on May 24, 2006, at $14.85 per share, a loss of $2.15, or 12.6

percent, on concerns about the Company’s ability to compete in the market place.

5. Following these concerns, shares of Vonage continued to fall on news that the

Company’s Directed Share Program was plagued by serious technical and logistical issues. In

the seven days after the IPO, shares of Vonage declined over 30 percent.

JURISDICTION AND VENUE

6. The claims asserted herein arise under and pursuant to Sections 11, 12(a)(2), and

15 of the Securities Act (15 U.S.C. §§ 77k and 77o).

7. This Court has jurisdiction over the subject matter of this action pursuant to

Section 22 of the Securities Act (15 U.S.C. § 77v).

8. Venue is proper in this Judicial District pursuant to Section 22 of the Securities

Act. Many of the acts and transactions alleged herein, including the preparation and

dissemination of materially false and misleading information, occurred in substantial part in this

Judicial District. Additionally, the Company maintains a principal executive office within this

Judicial District.

9. In connection with the acts, conduct and other wrongs alleged in this complaint,

defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,

including but not limited to, the United States mails, interstate telephone communications and

the facilities of the national securities exchange.

PARTIES

10. Plaintiffs, Marvin and Alice Wong, as set forth in the accompanying certification,

incorporated by reference herein, purchased Vonage common stock at artificially inflated prices

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pursuant or traceable to the Company’s IPO and have been damaged thereby.

11. Defendant Vonage is a Delaware corporation with its principal place of business

located at 23 Main Street, Holmdel, New Jersey 07733.

12. Defendant Jeffrey A. Citron (“Citron”) was, at all relevant times, the Company’s

Chairman and “Chief Strategist.” Prior to the IPO, defendant Citron resigned as the Company’s

Chief Executive Officer, a position which he held from January 2001 to February 2006.

13. Defendant Snyder was, at all relevant times, the Company’s Executive Officer

and a member of the Board of Directors.

14. Defendant Sharon A. O’Leary (“O’Leary”) was, at all relevant times, the

Company’s Executive Vice President and Chief Legal Officer.

15. Defendant Betsy S. Atkins (“Atkins”) was, at all relevant times, a member of the

Company’s Board of Directors.

16. Defendant Peter Barris (“Barris”) was, at all relevant times, a member of the

Company’s Board of Directors.

17. Defendant Morton David (“David”) was, at all relevant times, a member of the

Company’s Board of Directors.

18. Defendant Orit Gadiesh (“Gadiesh”) was, at all relevant times, a member of the

Company’s Board of Directors.

19. Defendant J. Sanford Miller (“Miller”) was, at all relevant times, a member of the

Company’s Board of Directors. Defendant Miller is also the co-founder and shareholder of

Thomas Weisel Partners, one of the Underwriters of the IPO.

20. Defendant Hugh Panero (“Panero”) was, at all relevant times, a member of the

Company’s Board of Directors.

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21. Defendant Thomas J. Ridge (“Ridge”) was, at all relevant times, a member of the

Company’s Board of Directors.

22. Defendant John J. Roberts (“Roberts”) was, at all relevant times, a member of the

Company’s Board of Directors.

23. Defendant Harry Weller (“Weller”) was, at all relevant times, a member of the

Company’s Board of Directors.

24. Defendants Citron, Snyder, O’Leary, Atkins, Barris, David, Gadiesh, Miller,

Panero, Ridge, Roberts, and Weller, are collectively referred to hereinafter as the “Individual

Defendants.” The Individual Defendants, because of their positions with the Company,

possessed the power and authority to control the contents of Vonage’s quarterly reports, press

releases and presentations to securities analysts, money and portfolio managers and institutional

investors, i.e., the market. Each defendant was provided with copies of the Company’s reports

and press releases alleged herein to be misleading prior to or shortly after their issuance and had

the ability and opportunity to prevent their issuance or cause them to be corrected. Because of

their positions and access to material non public information available to them, each of these

defendants knew that the adverse facts specified herein had not been disclosed to and were being

concealed from the public and that the positive representations which were being made were then

materially false and misleading. The Individual Defendants are liable for the false statements

pleaded herein, as those statements were each “group-published” information, the result of the

collective actions of the Individual Defendants.

25. Defendants Citigroup Global Markets Inc. (“Citigroup”), Deutsche Bank

Securities Inc. (“Deutsche Bank”), UBS Securities LLC (“UBS Securities”), Bear, Stearns & Co.

Inc. (“Bear Stearns”), Piper Jaffray & Co. (“Piper”), and Thomas Weisel Partners LLC

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(“Thomas Weisel”), served as one of the joint managers of Vonage’s IPO. Defendants

Citigroup, Deutsche Bank, UBS Securities, Bear Stearns, Piper, and Thomas Weisel are

collectively referred to hereinafter as the “Underwriter Defendants.”

SUBSTANTIVE ALLEGATIONS

Background

26. Vonage is a leading provider of broadband telephone services with over 1.6

million subscriber lines as of April 1, 2006. The Company’s award-winning technology enables

anyone to make and receive phone calls with a touch tone telephone almost anywhere a

broadband Internet connection is available.

27. Prior to its IPO, Vonage was a company that used its innovations into broadband

telephone technology to generate near-term subscriber growth. However, the Company’s

elevated marketing costs and build-out expenses resulted in a mammoth deficit and failure to

achieve profitability.

28. As a result of the Company’s high deficit and lack of profitability, and, among

other things, to reassure the investment community regarding its future growth plans, in its

Prospectus, the Company stated:

For the period from our inception through March 31, 2006, our accumulated deficit was $467.4 million. Our quarterly net losses generally have increased each quarter from our inception through the quarter ended March 31, 2006, for which our net loss was $85.2 million. Initially, our net losses were driven principally by start-up costs and the costs of developing our technology. More recently, our net losses have been driven principally by marketing expense, which was $88.3 million for the three months ended March 31, 2006. In order to grow our revenue and customer base, we have chosen to increase our marketing expenditures significantly. We are pursuing growth, rather than profitability, in the near term to capitalize on the current expansion of the broadband and VoIP markets and enhance the future value of our company. … We intend to continue to increase our marketing expense, and we may continue to generate losses for the

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foreseeable future…

29. Additionally, and with respect to the Company’s tenuous financial situation and

overall business model, various market commentators and analysts made the following critical

statements at or around the time of the IPO:

- Reuters, May 24, 2006

Vonage has acknowledged it may never be profitable and is viewed with skepticism by many analysts, who cite the growing competition it faces in providing voice-over-Internet protocol (VoIP) services. “It’s very hard to see what their competitive advantage is,” said Richard Greenfield, an analyst at Pali Research. “We basically believed, pre-IPO, that the price should be $10 or less.”

- TheStreet.com, May 24, 2006

“Vonage is a ride-along service” using other companies’ broadband connections to deliver calls, says one telecom investor who is not buying the initial offering. “There is no sustainable advantage as cable rolls out VoIP.” …Indeed, Vonage’s appeal to investors has been waning as more players rush to offer VoIP services. Between low-cost calling plans from cable companies and telcos, and the fast-growing appeal of free phone service from outfits like eBay’s Skype, Vonage faces a formidable cast of challengers.

- FORTUNE Magazine, May 24, 2006

Because Vonage’s service rides on the broadband connections controlled by cable or phone operators, it is somewhat limited in the kinds of new services it can roll out. The cable operators, for example, have been offering faster speeds over the cable modem connection for an extra monthly fee. Vonage wouldn’t be able to offer that kind of premium service to its subscribers because it doesn’t control the pipeline to the customer. …And as for selling other services, such as cable-television or wireless phone service, sure Vonage could resell another providers’ offer, but reselling is a pretty low margin business.

- FORBES.com, May 24, 2006

Vonage specializes in voice-over-Internet Protocol technology, which makes it possible to receive and send phone calls through an Internet connection. Eventually, the pricing for such technology

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will drop to nil, [Todd Rothemeier, an analyst at Soleil Securities/Sur Terre Research] says, as competition forces a price war. “[Vonage] will have to radically change their business model,” he says.

The IPO

30. On February 8, 2006, Vonage filed its initial Form S-1 Registration Statement

with the SEC. The Company’s Form S-1 stated that Vonage’s IPO sought to raise up to $250

million.

31. Also on February 8, 2006, Vonage announced that the Company had entered into

an agreement with defendant Snyder. The Company reported that defendant Snyder would

replace defendant Citron as Vonage’s Chief Executive Officer.

32. From February 8, 2006 through May 23, 2006, Vonage amended the Company’s

Form S-1 on eight separate occasions on the following dates: April 7, 2006; April 12, 2006;

April 26, 2006; April 28, 2006; May 8, 2006; May 22, 2006; and two separate amendments on

May 23, 2006.

33. On May 23, 2006, the Company and the Underwriter Defendants set the price of

the Vonage IPO shares at $17.00 per share.

34. Also on May 23, 2006, the SEC declared that Vonage’s Registration Statement

for the Offering was effective. Vonage and the Underwriter Defendants sold shares to Vonage

customer investors that same day.

Materially False and Misleading Statements

Made In the Registration Statement or Prospectus

a) Misstatements and Omissions Concerning Vonage’s Services and Products

35. With respect to the risks related to the Company’s service and products, the

Company, in its Prospectus, stated:

Flaws in our technology and systems could cause delays or

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interruptions of service, damage our reputation, cause us to lose customers and limit our growth.

Although we have designed our service network to reduce the possibility of disruptions or other outages, our service may be disrupted by problems with our technology and systems, such as malfunctions in our software or other facilities and overloading of our network. Our customers have experienced interruptions in the past and may experience interruptions in the future as a result of these types of problems. Interruptions have in the past and may in the future cause us to lose customers and offer substantial customer credits, which could adversely affect our revenue and profitability. For example, during 2005 our service was significantly impaired on two separate occasions. In March 2005, a problem during a software upgrade to our call processing system caused most of our customers to experience intermittent service for several hours. In August 2005, one of our third-party carriers experienced an outage of approximately 90 seconds, which caused a failure in some of our gateways. As a result, during a period of several hours, approximately two out of three outbound calls from our customers to the public switched telephone network experienced an “all circuits busy” condition. We have since had other outages that affected smaller groups of customers at various times. In addition, because our systems and our customers’ ability to use our services are Internet-dependant, our services may be subject to “hacker attacks” from the Internet, which could have a significant impact on our systems and services. If service interruptions adversely affect the perceived reliability of our service, we may have difficulty attracting and retaining customers and our brand reputation and growth may suffer.

Our ability to provide our service is dependent upon third-party facilities and equipment, the failure of which could cause delays or interruptions of our service, damage our reputation, cause us to lose customers and limit our growth.

Our success depends on our ability to provide quality and reliable service, which is in part dependent upon the proper functioning of facilities and equipment owned and operated by third parties and is, therefore, beyond our control. Unlike traditional wireline telephone service or wireless service, our service requires our customers to have an operative broadband Internet connection and an electrical power supply, which are provided by the customer’s Internet service provider and electric utility company, respectively, and not by us. The quality of some broadband Internet connections may be too poor for customers to use our services properly. In addition, if there is any interruption to a customer’s broadband

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Internet service or electrical power supply, that customer will be unable to make or receive calls, including emergency calls, using our service. We also outsource several of our network functions to third-party providers. For example, we outsource the maintenance of our regional data connection points, which are the facilities at which our network interconnects with the public switched telephone network. If our third-party service providers fail to maintain these facilities properly, or fail to respond quickly to problems, our customers may experience service interruptions. Our customers have experienced such interruptions in the past and will experience interruptions in the future. In addition, our new E-911 service is currently dependent upon several third-party providers. Interruptions in service from these vendors could cause failures in our customers’ access to E-911 services. Interruptions in our service caused by third-party facilities have in the past caused and may in the future cause us to lose customers, or cause us to offer substantial customer credits, which could adversely affect our revenue and profitability. If interruptions adversely affect the perceived reliability of our service, we may have difficulty attracting new customers and our brand, reputation and growth will be negatively impacted.

36. With respect to Vonage’s facsimile and other services, the Company, in its

Prospectus, stated:

We also offer a number of premium services for an additional fee, such as toll free numbers, fax numbers and virtual phone numbers.

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Subscriber lines [as reported] include, as of a particular date, all subscriber lines from which a customer can make an outbound telephone call on that date. Our subscriber lines include fax lines, SoftPhones and WiFi phones but do not include our virtual phone numbers or toll free numbers, which only allow inbound telephone calls to customers.

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We derive most of our telephony services revenue from monthly subscription fees that we charge our customers under our service plans. We also offer residential fax service, virtual phone numbers, toll free numbers and other services, for each of which we charge an additional monthly fee. One business fax line is included with each of our two small office and home office plans, but we charge monthly fees for additional business fax lines.

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- Residential Fax Service. We offer 250 minutes of outgoing fax service within the United States, Puerto Rico and Canada on a dedicated fax line for $9.99 per month, plus unlimited incoming faxes, with customers charged a per minute fee of 3.9 cents thereafter.

- Business Fax Service. We offer 500 minutes of outgoing fax service within the United States, Puerto Rico and Canada on a dedicated fax line plus unlimited incoming faxes, with customers charged a per minute fee of 3.9 cents thereafter. One business fax line is included in each of our business calling plans. We offer additional business fax lines for a monthly fee in the United States of $9.99 per line.

b) Misstatements Concerning Defendant Snyder

37. With respect to defendant Snyder’s previous employment history, the Company,

in its Prospectus, stated only that defendant Snyder had been employed as President of ADT

Security Services, Inc., a subsidiary of Tyco International Ltd. from 1997 to February 2006.

c) Misstatements Concerning Vonage’s Directed Share Program

38. With respect how the share price was determined, the Company, in its Prospectus,

stated:

The initial public offering price for the shares was determined by negotiation between us and Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and UBS Securities LLC. Among the factors considered in determining the initial public offering price were our record of operations, our current financial condition, our future prospects, the markets in which we operate, the economic conditions in and future prospects for the industry in which we compete, our management, and currently prevailing general conditions in the equity securities markets, including current market valuations of publicly traded companies considered comparable to our company. The prices at which the shares will sell in the public market after this offering may be lower, however, than the initial public offering price. Furthermore, an active trading market in our common stock may not develop or continue after this offering.

39. Additionally, and with respect to the Directed Share Program, the Company, in its

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Prospectus, stated that the underwriters would “reserve up to 13.5% and 1.5% of the common

stock offered in this prospectus for sale of our certain of our customers and other persons related

to us, respectively, at the initial public offering price.”

40. The Company, in its Prospectus, also stated:

In connection with the Directed Share Programs, we have agreed to indemnify the underwriters against certain liabilities, including those that may be caused by the failure of Directed Share Program participants to pay for and accept delivery of the common stock which had been allocated to them or were subject to a properly confirmed agreement to purchase. As a result, our expected net proceeds could be reduced if Directed Share Program participants fail to pay for an accept delivery of the common stock which had been allocated to them or were subject to a properly confirmed agreement to purchase and, as a result, we must indemnify the underwriters for such failure.

41. However, rather than properly qualifying Vonage customers, defendants allowed

Vonage customers to receive up to 5,000 shares of Vonage stock based upon an e-mail request

and the opening of an account with either Smith Barney, Deutsche Bank Alex. Brown or UBS

Financial. The IPO failed to contain any request for the customer’s financial information, tax

status, investment objectives, or other information considered to be reasonable beyond

confirmation that the Vonage customer’s telephone account was in good standing, opened prior

to December 15, 2005, and that the customer was a U.S. citizen.

42. Subclass members that participated in the Directed Share Program were instructed

by Vonage in its Prospectus “not to call us about the initial public offering or the Vonage

Customer Directed Share Program.” Instead, Vonage customers were told that the “Vonage

Customer Directed Share Program [would] be centrally administered through the program

website at ipoinfo.vonage.com” (the “IPO Website”).

43. Problems with the IPO Website and the dissemination of information to Subclass

members quickly arose. With respect to the IPO Website, the Company, in its Prospectus,

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stated:

Our initial email communication to prospective participants in the Vonage Customer Directed Share Program and the first page of the website identified above (from which a reader could access a detailed “frequently asked questions” section about the Vonage Customer Directed Share Program) did not include an active hyperlink to the prospectus contained in our most recently filed registration statement relating to this offering as required pursuant to Rule 433 under the Securities Act. As a result, it is possible that the e-mail communication and the first page of the website could be determined to be an illegal offer in violation of Section 5 of the Securities Act, in which case recipients could seek to recover damages or seek to require us to repurchase their shares at the IPO price.

In addition, our initial voicemail communication to prospective Vonage Customer Directed Share Program participants, which communication may contain only limited information pursuant to Rule 134 under the Securities Act, included the Internet address at which prospective participants could obtain additional information about the Vonage Customer Directed Share Program, including a copy of the prospectus contained in our most recently filed registration statement related to this offering. However, the voicemail did not include the name and address of a person from whom such a prospectus could be obtained. The inclusion of the Internet address in the voicemail might be viewed as incorporating into the voicemail information that is beyond the scope permissible under Rule 134. In addition, the omission of the name and address of a contact person means that the voicemail would not be entitled to the “safe-harbor” provided by Rule 134. As a result, it is possible that the voicemail could be determined to be an illegal offer in violation of Section 5 of the Securities Act, in which case recipients could seek to recover damages or seek to require us to repurchase their shares at the IPO price.

44. The statements contained in ¶¶ 35-43 were materially false and misleading when

made because defendants failed to disclose or indicated the following: (1) that Vonage’s

technology platform experienced problems carrying telephone data over the networks of certain

Internet service providers, including Time Warner Inc’s AOL; (2) that Vonage’s VoIP

technology did not properly allow facsimile transmissions; (3) that the Company did not

adequately inform investors about the history of Vonage’s management team; (4) specifically,

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that Vonage failed to disclose that Tyco’s ADT Security division took $600 million in charges

for accounting improprieties while defendant Snyder was President of the division; (5) that the

Company did not adequately inform Vonage customers that opened brokerage accounts and

participated in Vonage’s Directed Share Program concerning the customers’ obligations to

purchase allocated shares; (6) specifically, that Vonage customers that participated in the

Directed Share Program were obligated to purchase allocated shares before they received notice

that their conditional offers had been accepted, and were led to believe that the IPO would take

place later than May 23, 2006.

The Truth Begins to Emerge

45. On May 19, 2006, a class action lawsuit was filed in the United States District

Court for the District of New Jersey against Vonage and its U.S. subsidiary, Vonage America,

Inc. by two Vonage customers. The lawsuit, captioned Bustos and Watts v. Vonage America,

Inc. and Vonage Holdings Corp., No. 06 Civ. 02308 (D.N.J.) (“Bustos and Watts Class Action”)

alleged that Vonage’s failures in the Company’s facsimile services violated state common law

and the New Jersey Consumer Fraud Act.

46. The Bustos and Watts Class Action further alleged that Vonage failed to

adequately disclose that the Company’s technology platform could not handle the transmission

of facsimiles to Vonage customers. Fascimile transmission via the Internet is plagued by “packet

loss,” the failure of some of the data packets in which the facsimile is split up to transmit. To

prevent “packet loss,” certain corrective measures may be utilitized, the most popular of which is

the “Transmission Control Protocol.” Vonage failed to implement any such corrective protocol,

yet continued to tout the reliability of its facsimile transmission capabilities. The Prospectus

made no mention of the Bustos and Watts Class Action or the allegations contained therein.

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47. On May 24, 2006, CNBC initially reported that Vonage stated that the Company

would not “alienate” its customers by forcing payment from Vonage customers that refused to

pay for their IPO shares. Vonage further stated that the Company would repurchase any shares

from the Underwriter Defendants that were allocated to Vonage customers but remained unpaid.

48. Also on May 24, 2006, Vonage customers began to reveal problems they had with

the IPO. Specifically, FORBES.com reported, in relevant part:

Retail investors who participated in the Vonage initial public offering Wednesday got snared by glitches that tripped up their ability to bail after the debut quickly turned into a flop, with a 13% decline on the first day of trading.

Adding insult to injury, these investors—as many as 300 of them at one of the three principal trading houses where they could make their transactions—were also Vonage customers.

Some of Vonage’s 1.6 million subscribers were given a fairly unique opportunity to participate in the IPO through a Vonage program that would distribute some 4 million shares to subscribers who asked for them.

All the subscribers had to do was set up a limited-purpose brokerage account at either Citigroup’s Smith Barney, UBS or Deutsche Bank’s Alex. Brown. The three banks were the main underwriters on the IPO.

Vonage shares priced Tuesday night at $17, at the mid-range for the targeted price, and subscribers who signed up to participate in Vonage’s “directed share program” were told Tuesday night how many shares they would be getting and how much they’d have to pay for them.

The shares opened flat in trading Wednesday and pretty quickly started to fall, down almost 5% by mid-morning. And when an IPO stock starts to fall, everyone wants to sell.

But while the shares were falling, investors couldn’t get through to their brokers to make a sell order. One investor said he sat on hold for 20 to 30 minutes, and even after getting through, he had difficulty executing a sell order. “It was like 1994,” said the investor (who requested anonymity), referring to that primitive time before ubiquitous Internet access.

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The self-described professional investor (aka day trader) says he was told by UBS that the Internet function set up for the Vonage program participants wasn’t working. He had initially requested an allocation of 3,000 shares and was given 800 shares, he said—and he lost about $800 by the time he got his sale executed Wednesday morning.

He also said he couldn’t get a quote on the stock or any information about it via the Internet. At Smith Barney, information about Vonage’s share price was also missing on the client Web site. No Smith Barney representative was available for comment.

A UBS spokeswoman confirmed that technical problems on Wednesday affected some 10% of the 3,000 or so Vonage program participants the firm was working with, though not all of the 300 had difficulty putting through sell orders, she said. “We are working with our systems people to satisfy the needs of our clients,” she said.

A Vonage spokesman would not comment on anything, citing the quiet period surrounding the IPO.

49. On May 30, 2006, TheStreet.com reported a similar story and stated, in relevant

part:

Last week’s selloff taught one Vonage customer a lesson she won’t soon forget.

Nina Schreiber, a novice investor who has been a Vonage customer since 2004, tried to buy shares in the Holmdel, N.J.-based company’s initial public offering. Vonage, saying much of its success has been “attributable to our customers,” earlier this month allocated 15% of the IPO to users.

***

Earlier this month, Shreiber says she requested 5,000 Vonage shares, the most she could get.

On the evening of May 23, when the IPO was priced, Shreiber says the Vonage IPO Web site reported that her purchase never went through.

“In big, huge, bold letters it said I was allocated zero, and that I owed zero dollars,” says Shreiber in an interview.

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The next day, though, Shreiber was surfing the Internet again and decided to take another peek at the IPO site. She was stunned to find out that the site now said she had been awarded 1,300 shares – and owed $22,100.

By then, Vonage shares had cratered more than 13% in the worst IPO debut since 2004. Now, Shreiber is working with her broker to get out of the transaction.

“In my mind, I don’t own this stock,” Shreiber says.

A similar account is offered by Vonage customer David McFeeters-Krone. He says he didn’t realize he had acquired shares until a statement came in the mail that he almost threw out in the trash.

“Anyway, I thought it was lame that their system screwed up and I probably held my shares a day or two longer than I would have otherwise, but hey I obligated myself to this process,” he writes in an email.

Others say they had a difficult time selling them.

“After the stock tanked, it took me hours to find out how to sell my shares,” writes Vonage customer Bob Moriarty in an email. “I’m still trying to find out how to get my cash out of the account.”

50. On May 31, 2006, Vonage reversed its previous position, and stated that the

Company would undertake efforts to force Vonage customers to pay for their allocated shares.

51. On this news, shares of Vonage traded to a low of $11.52 per share, before

closing, on June 1, 2006, at $11.63 per share. In the seven trading days after the IPO, shares of

Vonage declined over 30 percent.

52. Reports of Vonage customers experiencing problems with the IPO Website

continued to surface. Specifically, the June 3-4, 2006 weekend edition of The Wall Street

Journal reported:

Yesterday, some customers-turned-shareholders said problems in the online system for ordering shares delayed their attempts to trade, or led them to believe they didn’t own shares when in fact their orders had gone through and they did. As Vonage stock

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dropped, these customers say, their losses mounted without their knowledge.

Mr. Baden, for instance, says he signed up for 200 shares but wasn’t notified of the $17 offering price or given a chance to confirm his purchase before his deal went through. “I think it has been very lousy as a customer experience,” he says, adding that he hasn’t decided whether he will contest the purchase.

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Says Steve Norsworthy, a telecommunications engineering consultant from San Diego who bought 1,300 shares: “Vonage and the underwriters didn’t do their jobs, and the customers who helped make the company successful are taking it on the chin.” He adds, “This is definitely cooling my interest in staying with Vonage as a customer.”

Some customers who bought the IPO have even threatened to withhold payment, a step Vonage has said it will answer with collection efforts.

***

A key issue, investors say, is a line from the IPO prospectus that said Vonage would compensate its underwriters in the event that customers didn’t pay for the shares they had pledged to buy. Some investors took that to mean they weren’t obligated to pay.

In the first days of trading, the company added to the confusion by suggesting on CNBC that it wasn’t likely to play hardball with customers who balked. “While all avenues are available to us, we cannot imagine alienating our customers in that way,” the company said in a statement on May 30. If certain … customers don’t pay, we expect to repurchase the shares from the underwriters if necessary.”

The statement set off a flood of speculation on www.vonage-forum.com and elsewhere that Vonage was allowing customers to back out and would buy shares back from customers. But a week after trading began, Vonage clarified that it wouldn’t buy back shares and reserved the right to pursue payment. It sent customers emails reiterating their obligation to pay.

***

A spokesman for Citigroup’s Smith Barney said the company found no technical glitches in its systems for handling customer

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orders. A spokesman for the securities unit of Deutsche Bank declined to comment.

A UBS spokesman said about 300 of its customers encountered technical problems, such as being unable to log onto their accounts or complete trades. He said UBS has records of their efforts and phone calls if they couldn’t trade online and would honor their intentions. Citing a legally mandated quiet period, the underwriters declined to comment on the pricing of the IPO and other aspects of the deal.

PLAINTIFFS’ CLASS ACTION ALLEGATIONS

53. Plaintiffs bring this action as a class action pursuant to Federal Rule of Civil

Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased or

otherwise acquired Vonage common stock pursuant or traceable to the Company’s May 23, 2006

IPO, and who were damaged thereby (the “Class”). Excluded from the Class are defendants, the

officers and directors of the Company, at all relevant times, members of their immediate families

and their legal representatives, heirs, successors or assigns and any entity in which defendants

have or had a controlling interest.

54. Plaintiffs also bring this action as a class action pursuant to Federal Rules of Civil

Procedure 23(a) and (b)(3) on behalf of a Subclass, consisting of all Class members who

purchased or otherwise acquired Vonage common stock through the Vonage Directed Share

Program and were damaged thereby. Excluded from the Subclass are defendants, the officers

and directors of the Company, at all relevant times, members of their immediate families and

their legal representatives, heirs, successors or assigns and any entity in which defendants have

or had a controlling interest.

55. The members of the Class and Subclass are so numerous that joinder of all

members is impracticable. Throughout the Class Period, Vonage’s common stock was actively

traded on the New York Stock Exchange (“NYSE”). While the exact number of Class and

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Subclass members is unknown to Plaintiffs at this time and can only be ascertained through

appropriate discovery, Plaintiffs believe that there are hundreds or thousands of members in the

proposed Class and Subclass. Record owners and other members of the Class and Subclass may

be identified from records maintained by Vonage or its transfer agent and may be notified of the

pendency of this action by mail, using the form of notice similar to that customarily used in

securities class actions.

56. Plaintiffs’ claims are typical of the claims of the members of the Class and

Subclass as all members of the Class and Subclass are similarly affected by defendants’ wrongful

conduct in violation of federal law that is complained of herein.

57. Plaintiffs will fairly and adequately protect the interests of the members of the

Class and Subclass and have retained counsel competent and experienced in class and securities

litigation.

58. Common questions of law and fact exist as to all members of the Class and

Subclass and predominate over any questions solely affecting individual members of the Class

and Subclass. Among the questions of law and fact common to the Class and Subclass are:

a. whether the federal securities laws were violated by defendants’ acts as

alleged herein;

b. whether statements made by defendants to the investing public during the

Class Period misrepresented material facts about the business, operations

and management of Vonage; and

c. to what extent the members of the Class and Subclass have sustained

damages and the proper measure of damages.

59. A class action is superior to all other available methods for the fair and efficient

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adjudication of this controversy since joinder of all members is impracticable. Furthermore, as

the damages suffered by individual Class and Subclass members may be relatively small, the

expense and burden of individual litigation make it impossible for members of the Class and

Subclass to individually redress the wrongs done to them. There will be no difficulty in the

management of this action as a class action.

UNDISCLOSED ADVERSE FACTS

60. The market for Vonage’s common stock was open, well-developed and efficient

at all relevant times. As a result of these materially false and misleading statements and failures

to disclose, Vonage’s common stock traded at artificially inflated prices during the Class Period.

Plaintiffs and other members of the Class and Subclass purchased or otherwise acquired Vonage

common stock relying upon the integrity of the market price of Vonage’s securities and market

information relating to Vonage, and have been damaged thereby.

61. During the Class Period, defendants materially misled the investing public,

thereby inflating the price of Vonage’s common stock, by publicly issuing false and misleading

statements and omitting to disclose material facts necessary to make defendants’ statements, as

set forth herein, not false and misleading. Said statements and omissions were materially false

and misleading in that they failed to disclose material adverse information and misrepresented

the truth about the Company, its business and operations, as alleged herein.

62. At all relevant times, the material misrepresentations and omissions particularized

in this Complaint directly or proximately caused or were a substantial contributing cause of the

damages sustained by Plaintiffs and other members of the Class and Subclass. As described

herein, during the Class Period, defendants made or caused to be made a series of materially

false or misleading statements about Vonage’s business, prospects and operations. These

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material misstatements and omissions had the cause and effect of creating in the market an

unrealistically positive assessment of Vonage and its business, prospects and operations, thus

causing the Company’s common stock to be overvalued and artificially inflated at all relevant

times. Defendants’ materially false and misleading statements during the Class Period resulted

in Plaintiffs and other members of the Class purchasing the Company’s common stock at

artificially inflated prices, thus causing the damages complained of herein.

LOSS CAUSATION

63. Defendants’ wrongful conduct, as alleged herein, directly and proximately caused

the economic loss suffered by Plaintiffs and the Class and Subclass.

64. During the Class Period, Plaintiffs and the Class and Subclass purchased the

common stock of Vonage at artificially inflated prices and were damaged thereby. The price of

Vonage’s common stock declined when the misrepresentations made to the market, and/or the

information alleged herein to have been concealed from the market, and/or the effects thereof,

were revealed, causing investors’ losses.

Applicability of Presumption of Reliance:

Fraud On The Market Doctrine

65. At all relevant times, the market for Vonage common stock was an efficient

market for the following reasons, among others:

a. Vonage stock met the requirements for listing, and was listed and actively

traded on the NYSE, a highly efficient and automated market;

b. As a regulated issuer, Vonage filed periodic public reports with the SEC

and the NYSE;

c. Vonage regularly communicated with public investors via established

market communication mechanisms, including through regular

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disseminations of press releases on the national circuits of major newswire

services and through other wide-ranging public disclosures, such as

communications with the financial press and other similar reporting

services; and

d. Vonage was followed by several securities analysts employed by major

brokerage firms who wrote reports which were distributed to the sales

force and certain customers of their respective brokerage firms. Each of

these reports was publicly available and entered the public marketplace.

66. As a result of the foregoing, the market for Vonage common stock promptly

digested current information regarding Vonage from all publicly-available sources and reflected

such information in Vonage’s stock price. Under these circumstances, all purchasers of Vonage

common stock during the Class Period suffered similar injury through their purchase of Vonage

common stock at artificially inflated prices and a presumption of reliance applies.

NO SAFE HARBOR

67. The statutory safe harbor provided for forward-looking statements under certain

circumstances does not apply to any of the allegedly false statements pleaded in this complaint.

Many of the specific statements pleaded herein were not identified as “forward-looking

statements” when made. To the extent there were any forward-looking statements, there were no

meaningful cautionary statements identifying important factors that could cause actual results to

differ materially from those in the purportedly forward-looking statements. Alternatively, to the

extent that the statutory safe harbor does apply to any forward-looking statements pleaded

herein, defendants are liable for those false forward-looking statements because at the time each

of those forward-looking statements was made, the particular speaker knew that the particular

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forward-looking statement was false, and/or the forward-looking statement was authorized

and/or approved by an executive officer of Vonage who knew that those statements were false

when made.

FIRST CLAIM

Violation of Section 11 of the

Securities Act Against All Defendants

68. Plaintiffs repeat and reallege each and every allegation contained above as if fully

set forth herein only to the extent, however, that such allegations do not allege fraud, scienter or

the intent of the defendants to defraud Plaintiffs or members of the Class and Subclass. This

count is predicated upon defendants’ strict liability for making false and materially misleading

statements in the Registration Statement and Prospectus.

69. This claim is asserted by Plaintiffs against all defendants by and on behalf of

persons who acquired shares of the Company pursuant to or traceable to the false Registration

Statement and Proxy Statement issued in connection with the May 2006 IPO.

70. Individual Defendants as signatories of the Registration Statement and the

Prospectus, as directors and/or officers of Vonage and controlling persons of the issuer, owed to

the holders of the stock obtained through the Prospectus the duty to make a reasonable and

diligent investigation of the statements contained in the Registration Statement and the

Prospectus at the time they became effective to ensure that such statements were true and correct

and that there was no omission of material facts required to be stated in order to make the

statements contained therein not misleading. Defendants knew, or in the exercise of reasonable

care should have known, of the material misstatements and omissions contained in or omitted

from the Registration Statement and the Prospectus as set forth herein. As such, defendants are

liable to the Class and Subclass.

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71. Underwriter Defendants owed to the holders of the stock obtained through the

Prospectus the duty to make a reasonable and diligent investigation of the statements contained

in the Registration Statement and the Prospectus at the time they became effective to ensure that

such statements were true and correct and that there was no omission of material facts required to

be stated in order to make the statements contained therein not misleading. Defendants knew, or

in the exercise of reasonable care should have known, of the material misstatements and

omissions contained in or omitted from the Registration Statement and the Prospectus as set forth

herein. As such, defendants are liable to the Class and Subclass.

72. None of the defendants made a reasonable investigation or possessed reasonable

grounds for the belief that the statements contained in the Registration Statement and the

Prospectus were true or that there was no omission of material facts necessary to make the

statements made therein not misleading.

73. Defendants issued and disseminated, caused to be issued and disseminated, and

participated in the issuance and dissemination of, material misstatements to the investing public

which were contained in the Prospectus, which misrepresented or failed to disclose, inter alia,

the facts set forth above. By reason of the conduct herein alleged, each defendant violated and/or

controlled a person who violated Section 11 of the Securities Act.

74. As a direct and proximate result of defendants’ acts and omissions in violation of

the Securities Act, the market price of Vonage stock sold in the IPO was artificially inflated and

Plaintiffs and the Class and Subclass suffered substantial damage in connection with their

ownership of Vonage common stock pursuant to the Registration Statement and the Prospectus.

75. Vonage is the issuer of the stock sold via the Registration Statement. As issuer of

the stock, the Company is strictly liable to Plaintiffs and the Class and Subclass for the material

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misstatements and omissions therein.

76. At the times they obtained their shares of Vonage, Plaintiffs and members of the

Class and Subclass did so without knowledge of the facts concerning the misstatements or

omissions alleged herein.

77. This action is brought within one year after discovery of the untrue statements and

omissions in and from the Prospectus which should have been made through the exercise of

reasonable diligence, and within three years of the effective date of the Prospectus.

78. By virtue of the foregoing, Plaintiffs and the other members of the Class and

Subclass are entitled to damages under Section 11 as measured by the provisions of Section

11(e), from the defendants and each of them, jointly and severally.

SECOND CLAIM

Violation of Section 12(a)(2) of

the Securities Act Against All Defendants

79. Plaintiffs repeat and reallege each and every allegation contained above as if fully

set forth herein.

80. This Count is brought pursuant to Section 12(a)(2) of the Securities Act on behalf

of the Class and Subclass, against all defendants.

81. Defendants were sellers, offerors, and/or solicitors of purchasers of the shares

offered pursuant to the Vonage Offering Registration Statement and Proxy-Prospectus.

82. The Vonage IPO Registration Statement and Proxy-Prospectus contained untrue

statements of material facts, omitted to state other facts necessary to make the statements made

not misleading, and concealed and failed to disclose material facts. The Individual Defendants’

actions of solicitation included participating in the preparation of the false the misleading

Prospectus and Registration Statement.

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83. Defendants owed to the purchasers of Vonage common stock, including Plaintiffs

and other members of the Class and Subclass, the duty to make a reasonable and diligent

investigation of the statements contained in the IPO materials, including the Proxy-Prospectus

and Registration Statement, to ensure that such statements were true and that there was no

omission to state a material fact required to be stated in order to make the statements contained

therein not misleading. Defendants knew of, or in the exercise of reasonable care should have

known of, the misstatements and omissions contained in the IPO materials as set forth above.

84. Plaintiffs and other members of the Class and Subclass purchased or otherwise

acquired Vonage common stock pursuant to and/or traceable to the defective Proxy-Prospectus.

Plaintiffs did not know, or in the exercise of reasonable diligence could not have known, of the

untruths and omissions contained in the Prospectus.

85. Plaintiffs, individually and representatively, hereby offer to tender to defendants

that common stock which Plaintiffs and other Class and Subclass members continue to own, on

behalf of all members of the Class and Subclass who continue to own such common stock, in

return for the consideration paid for that common stock together with interest thereon. Class and

Subclass members who have sold their Vonage common stock are entitled to rescissory damages.

86. By reason of the conduct alleged herein, these defendants violated, and/or

controlled a person who violated Section 12(a)(2) of the Securities Act. Accordingly, Plaintiffs

and members of the Class and Subclass who hold Vonage common stock purchased in the IPO

have the right to rescind and recover the consideration paid for their Vonage common stock and

hereby elect to rescind and tender their Vonage common stock to the defendants sued herein.

Plaintiffs and Class and Subclass members who have sold their Vonage common stock are

entitled to rescissory damages.

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87. This action is brought within three years from the time that the common stock

upon which this Count is brought was sold to the public, and within one year from the time when

Plaintiffs discovered or reasonably could have discovered the facts upon which this Count is

based.

THIRD CLAIM

Violation of Section 15 of The Securities Act

Against the Individual Defendants

88. Plaintiffs repeat and reallege each and every allegation contained above,

excluding all allegations above that contain facts necessary to prove any elements not required to

state a Section 15 claim, including without limitation, scienter.

89. This count is asserted against Individual Defendants and is based upon Section 15

of the Securities Act.

90. Individual Defendants, by virtue of their offices, directorship and specific acts

were, at the time of the wrongs alleged herein and as set forth herein, controlling persons of

Vonage within the meaning of Section 15 of the Securities Act. Individual Defendants had the

power and influence and exercised the same to cause Vonage to engage in the acts described

herein.

91. Individual Defendants’ position made them privy to and provided them with

actual knowledge of the material facts concealed from Plaintiffs and the Class and Subclass.

92. By virtue of the conduct alleged herein, Individual Defendants are liable for the

aforesaid wrongful conduct and are liable to Plaintiffs and the Class and Subclass for damages

suffered.

WHEREFORE, Plaintiffs pray for relief and judgment, as follows:

a. Determining that this action is a proper class action under Rule 23 of the

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Federal Rules of Civil Procedure;

b. Awarding compensatory damages in favor of Plaintiffs and the other Class

and Subclass members against all defendants, jointly and severally, for all

damages sustained as a result of defendants’ wrongdoing, in an amount to

be proven at trial, including interest thereon;

c. Awarding Plaintiffs and the Class and Subclass their reasonable costs and

expenses incurred in this action, including counsel fees and expert fees;

and

d. Such other and further relief as the Court may deem just and proper.

JURY TRIAL DEMANDED

Plaintiffs hereby demand a trial by jury.

Respectfully submitted,

Dated: LITE DEPALMA GREENBERG & RIVAS

LLC

By:_____________________

JOSEPH J. DEPALMA

Two Gateway Center 12th Floor Newark, NJ 07102-5003 (973) 623-3000

SCHIFFRIN & BARROWAY, LLP

Marc A. Topaz Richard A. Maniskas Alison K. Clark 280 King of Prussia Rd. Radnor, PA 19087 (610) 667-7706 Attorneys for Plaintiffs