I happen to think Vonage has a good technology, but probably not deep enough pockets to achieve its objectives. Rather than sell to a telco giant, the company decided to do an IPO. Bad decision. The company is now broken unless they sell out quickly.

VG shares plummeted from $17 to under $12 in seven sessions, because, I think, they offered a free pass to their business customers.

You know, not all Moms & Pops are stupid. If these customers of the company's phone service expressed interest to the company and agreed to take down the shares directly, it should have been obvious that some of these buyers would be ready to flip them for a quick profit, or ready to walk away if the shares fell in price.

But others would be thinking that this allocation is really a way to cover my short, so I'm going short; I can't lose. I either cover in the market, or I take down the allocated stock and deliver it.

That's the thinking anyway.

And some of these sharpies would realize that securities cannot be sold to the public without a prospectus, so being provided an IPO allocation (which is a purchase-and-sale agreement) without a prospectus is an obvious error by the company. And let the legal problems begin.

There are flippers of IPO's who have accounts at multiple dealers who are underwriters and/or participants in the major underwriting syndicates.

I used to have a client " a real player -- who would order 10,000 shares or more of every new issue from at least seven different dealers. If his expression of interest was filled or looked like that would happen, he knew it was going to be a dog, so he retracted his interest, and then possibly shorted in the after-market. And if he had to fight for a few shares, he took down all he could and flipped them in the after-market.

Underwriters hate people like this. And people like this are always on the lookout for a real pooch deal like VG was set up to be " a direct dealer you can walk away from. You can renege on a Vonage, and what are they going to do, cut off your IP phone service? But you renege on a Wall Street firm and you can kiss your account goodbye " you are persona non grata on the Street for many years.

Yes, the VG IPO was a disaster, but why didn't the NYSE and the underwriters take some responsibility for checking the contracts between company and their telephone customers? I mean, we're talking the sale of securities, and the NYSE and the underwriters are full experts in these matters. So, when thousands of Moms & Pops are sold VG securities without a prospectus, and the experts in the same deal completely miss the most fundamental breach of securities law, I have to think there is an accountability problem here if they try to stick Vonage with the whole scandal.

Were these people just so busy counting their own profits in the deal to be blind to the obvious?