Now CNBC has learned that the company is looking to lessen the blow for a group of investors who also happen to be Vonage customers. At issue is a controversial plan in which 13.5% of the deal was reserved for customers of Vonage’s telephone service, something called the “direct to share” program. Under the plan, a Vonage customer could sign up to buy shares of the IPO, and pay for the stock later through one of the three lead underwriters on the deal, Citigroup, Deutsche Bank and UBS.

But what looked like a good way to keep the company’s customers happy by letting them in on a high-flying IPO backfired after the stock price cratered, falling from $17 to around $12 just after shares began trading. It wasn’t long before the firm’s underwriters complained that many of the direct to share customers were balking at paying for their stock, which the company said they were legally obligated to purchase.

Over the Memorial Day weekend, the company found itself in a difficult situation. These were after all Vonage customers who were stuck holding the rapidly deflating stock. At one point, it considered simply letting the underwriters decided what to do, possibly sticking the underwriters with the unwanted stock if people chose not to pay up. It also considered taking possible legal action against those customers who didn’t want to make good on their purchase, people at Vonage said.

Late Sunday, Vonage came up with a solution: Those customers who don’t want to pay won’t have to. Here’s the company’s statement: “While all avenues are available to us we cannot imagine alienating our customers in that way. If certain DSP (Direct To Share) customers don’t pay we expect to repurchase shares from the underwriters if necessary.”

This is clearly a messy situation that will likely get even messier. As my colleague Joe Kernen pointed out on Squawk Box this morning, Vonage has essentially created two classes of shareholders. What type of relief is the company given to a customer of one of Citigroup’s Smith Barney brokerage unit who is stuck holding shares at Vonage now trading well below the offering price?

I’d also like to know what so much of the deal went to retail investors. It’s one thing for a large money manager to be holding onto shares that have fallen that quickly in value, but its another thing for some average investors to loose that much money so quickly.

While many small investors who hold the stock probably wish they never heard of the name Vonage, this story clearly isn’t going away.

Charles Gasparino - CNBC

When federal prosecutors indicted Milberg Weiss Bershad & Schulman on Thursday, Wall Street was supposed to be celebrating.  After all, no other law firm had been as successful at squeezing billion-dollar settlements out of Corporate America over the past four decades. And no other firm represented the evils of overzealous class-action litigation than Milberg Weiss, with its tough as nails lead partner, Mel Weiss and his battle-hardened second in command, Bill Lerach.

But the cheering of Milberg Weiss’ pending demise was clearly muted, at least according to the CEOs and defense attorneys I spoke with in recent days. The reason? The firm, and its top guns like Weiss and Lerach (who now has started his own company), may be bad guys at least as far as Wall Street is concerned, but the alternative might be worse. In other words, Wall Street is waking up in the aftermath of the indictment with the feeling that it’s better to deal with the devil you know rather than the devil you don’t.

That sentiment was front and center as the big firms contemplated their next move in one of the biggest cases still pending with the firm. Milberg Weiss is the lead firm in a massive class action against nearly all the big Wall Street firms over the allocation of initial public offerings during the 1990s stock market bubble. Mel and the boys contend that Wall Street’s methods of distributing IPOs in the market screwed small investors. He’s seeking a whopping $6 billion from all the top Wall Street firms on behalf of plaintiffs. The betting on Wall Street, at least before the indictment, was that he’d get the money, or something close to it. Already JPMorgan has agreed to fork over around $400 million, and the form wasn’t even close to the biggest player in the IPO market. As a result, firms like Goldman and Morgan could be on the hook for even more, possibly several times that amount, at least if Mel has his way.

The problem is that with Milberg Weiss wounded, and Mel himself  a target for prosecution, Wall Street is worrying that its $6 billion liability may grow substantially. Weiss is the father of the class action bar, not just because he’s a good lawyer, but also because he’s a reasonable guy. Nearly every big CEO on Wall Street has a relationship with Weiss, who by most accounts knows how to cut a deal that benefits all sides in these negotiations.

Weiss’s replacement, whoever that might be, may not be so reasonable, and that has Wall Street sweating bullets.   

Charles Gasparino - CNBC         

CNBC has learned that following discussions with federal prosecutors, attorneys for the firm believe that baring some last minute development two partners, Steven Schulman and David Bershad will be indicted in the coming days or weeks, according to people with knowledge of the situation. In addition, CNBC has learned that lawyers at Milberg Weiss believe they will find out sometime within the next week or so if the firm itself will be indicted. According to people close to the matter, the lawyers believe there’s a 50-50 chance that the firm itself will be indicted in the case.

          The investigation, by the US Attorney’s office in Los Angeles, involves allegations that the firm paid kickbacks to potential clients in exchange for bringing the firm cases. The firm has said it has done nothing wrong—that the alleged kickbacks were nothing more than finders’ fees, which are perfectly legal. That said, the US Attorney’s office scored a major victory in its case when it received a guilty plea from a retired real estate broker and former client of Milberg Weiss who said he was paid fees for bringing a case to the firm.

          Recently, the US attorney’s office has said that the two most famous partners at the firm, Mel Weiss and William Lerach will not be indicted at this time. The reason why the government is focusing on Schulman and Bershad it appears is because the real estate broker who cut the plea deal says he dealt primary with Schulman and Bershad.

          Let me make a couple of caveats here: Predicting criminal indictments is a tricky business. Many of these cases are fluid, and federal prosecutors often use the threat of indictment to force targets to give up evidence about others. Indeed, just a couple of months ago it appeared that Weiss and Lerach were in the prosecutor’s cross hairs.

          However, if either Schulman, Bershad or the firm is indicted, it would be a major blow to the class action business. These are the top players in that business, and they’ve done a great job for their clients over the years, wringing huge settlements from Corporate America and Wall Street on behalf of investors.

          Attorneys for Schulman and Bershad didn’t return telephone calls.

Charles Gasparino - CNBC