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Norvergence Forfeits $47 Million In FTC Settlement

Consumers Billed for Worthless Telecom Services

July 26, 2005
The Federal District Court in Newark, New Jersey, has entered a final default judgment against NorVergence, Inc., that will immediately result in the cancellation of 1,600 contracts with the company valued at more than $47 million.

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The judgment is the result of a November 2004 Federal Trade Commission complaint charging NorVergence with defrauding consumers through misleading claims that it would provide them with dramatic savings on their monthly telephone, cellular, and Internet bills.

The court found that consumers signed a set of applications and agreements with a total price equal to the promised monthly payments over five years. Most of the total payments were allocated to rental agreements for a “Matrix” or “Matrix Soho” device that supposedly would provide the promised costs savings.

In reality, the Matrix was just a standard integrated access device (IAD), commonly used to connect telephone equipment to a long-distance provider's lines. The Matrix Soho was essentially a firewall.

The Matrix boxes cost between $200 and $1,550. The total cost to the consumer was $7,000 to $340,000, with an average cost of $29,291. The price of the rental agreement had nothing to do with the cost of the Matrix, which itself was an incidental part of the promised services.

NorVergence had an estimated 9,400 Matrix rental agreements totaling over $275 million. Other than the 1,600 contracts cancelled by this judgment, NorVergence sold its rental agreements shortly after they were signed to over 40 finance companies for cash. These sold contracts are not immediately affected by the default judgment.

An unknown minority of these contracts were sold to finance companies for only a part of their typical five-year term. The default judgment makes these contracts void and unenforceable as of the end of the partial term when they are due to come back to NorVergence.

The court also found that NorVergence failed to tell consumers that it did not have a long-term commitment from any service provider for the services it was promising to provide. NorVergence also failed to tell consumers that the Matrix boxes covered by the rental agreement would be of little or no value to them if NorVergence failed to provide the promised telecommunications services.

Finally, the court found that NorVergence had furnished the finance companies who purchased its contracts with the means and instrumentalities to commit deceptive and unfair acts or practices violating the FTC Act. It provided those finance companies with rental agreements that allowed the finance companies to: 1) misrepresent that consumers owe money on the rental agreements, regardless of whether NorVergence provided the promised telecommunications services; and 2) file collection suits against consumers in courts far from where the consumers are located.

The FTC worked cooperatively on this matter with various state attorney generals’ offices, which also have investigated NorVergence’s business practices. More than 20 states also have reached settlements with some of the finance companies that purchased and are collecting on NorVergence rental agreements. Consumers in these states should contact their attorney general directly for further information on the state settlements.

The states include: New Jersey, New York, Florida, Massachusetts, Illinois, California, Maryland, Rhode Island, Delaware, Georgia, Connecticut, Kansas, New Hampshire, Pennsylvania, Arizona, Indiana, Ohio, Virginia, South Carolina, South Dakota, Texas, West Virginia, North Carolina, and the District of Columbia.

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