Three Additional Settlements Reached For Norvergence Customers

Attorney General Spitzer today announced settlements with three additional financial institutions in connection with a widespread telecommunications fraud involving NorVergence, Inc., a bankrupt New Jersey-based telephone equipment and service company.

Under the terms of these newly announced agreements, the financing companies will forgive approximately $186,000 in payments due from New York customers who had signed long-term contracts with NorVergence. Last month, Spitzer announced settlements with six other financial institutions.

"I am pleased that our settlements now total more than $13 million in relief for NorVergence customers," said Spitzer. "These settlements bring a resolution to many small businesses that were struggling to remain competitive while obliged to make steep lease payments for worthless equipment."

The chart below outlines the terms of the new settlements:

In addition, the settlements forgive any late fees, penalties and property insurance charges imposed after termination of contracted services, and credit any payments made after service was terminated. The financial institutions will issue refunds to customers where payments exceeded amounts due under the settlements and will terminate all litigation and withdraw any adverse credit reports against former NorVergence customers who elect to participate in the settlements. The financial institutions will also offer the same settlement terms to customers who have already settled on less favorable terms.

Currently, 14 other financial institutions are facing impending legal action by the Attorney General in connection with the fraudulent NorVergence telecommunications agreements. Those institutions include:

Alfa Financial Corporation, d/b/a OFC Capital; BB&T Leasing Company; Celtic Bank Corporation;
Partners Equity Capital Company, LLC d/b/a/ Commerce Commercial Leasing, LLC; Dolphin Capital Corp.; IFC Credit Corp.; Interchange Bank; Liberty Bank Leasing; National City Commercial Capital Corp. (formerly known as Information Leasing Corporation); Popular Leasing USA, Inc.; Preferred Capital, Inc.; R-G Crown Bank (d/b/a Crown Bank Leasing); Sterling Bank Leasing, Inc.; and
Studebaker-Worthington Leasing Corp.

Notices regarding potential legal actions were also sent by the Attorney General to Thomas Salzano and Peter Salzano as officers of NorVergence, which was declared bankrupt in July 2004.

NorVergence began aggressively marketing its telecommunications products in 2002, falsely promising potential customers savings of up to 60 percent. It attributed these savings to its use of a proprietary device referred to as a "matrix box." The company claimed this technological innovation provided customers with wireless, toll-free inbound, local and long-distance telephone service; and high-speed internet connection, all for a fixed monthly fee. In truth, the equipment accomplished none of these functions; rather, it is commonly used in the industry to permit both voice and data transmission over a high-speed service line.

NorVergence's sales force was trained to apply deceptive and high pressure sales tactics to prospective customers, which consisted largely of small businesses, not-for-profits and religious institutions. Nationally, the company secured approximately 11,000 customers; nearly 1,000 in New York.

The company's customers typically signed five-year contracts, which the company then sold at a discount to third-party financial institutions. The financial institutions, in turn, billed customers under the original contract terms. These multi-year commitments purported to obligate customers to pay as much as $340,000 for the matrix box, even though the market value of the device was no more than $1,500.

When a federal bankruptcy court declared NorVergence bankrupt last summer, customers were left without telecommunications services and had to purchase alternative service on a per call basis. Yet the financial institutions continued to bill customers for the discontinued services, and in some instances sued to collect on the agreements.

Consumers wishing to file a complaint pertaining to a NorVergence telecommunications contract may contact the Attorney General's toll-free consumer helpline (800) 771-7755, or visit our website at www.ag.ny.gov.

This matter is being handled by Assistant Attorneys General Joy Feigenbaum, Keith Gordon, and Shahla Ali under the direction of Susanna Zwerling, Chief of the Telecommunications and Energy Bureau, Thomas Conway, Chief of the Consumer Frauds and Protection Bureau, and Terryl Brown Clemons, Assistant Deputy Attorney General for the Division of Public Advocacy.