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GE Capital Agrees to NorVergence Settlement

May 19, 2005
Eight attorneys general have crafted a settlement agreement that could provide millions of dollars in debt forgiveness to small businesses now on the hook for payments to third-party leasing companies after an allegedly fraudulent telecommunications company went bankrupt.

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The Attorneys General of Connecticut, Georgia, Illinois, Maryland, North Carolina, Pennsylvania, South Dakota, and Washington, D.C., have reached an agreement with General Electric Capital Corporation (GE Capital) in connection with its collection agreements on behalf of NorVergence, Inc.

Under the terms of the agreement, affected consumers may choose to participate or decline to participate. If all affected consumers in the six states and D.C. accept the deal, GE Capital will be writing off more than $2.89 million in debt for 216 small businesses.

"Deceptive sales pitches lured hundreds of Illinois small business customers into signing telecommunication service agreements with NorVergence. But when the service suddenly ceased, the collection agency hassles began," Illinois Attorney General Lisa Madigan said.

"With this agreement, GE Capital is agreeing to end a nightmare that has haunted many small businesses as they try to regain telecommunications service and overcome the financial hurdles caused by NorVergence."

Under the settlement agreement, GE Capital -- which entered into direct contracts with NorVergence customers or, through other third-party companies, bought out lease agreements between NorVergence and its customers -- has agreed to write off or forgive $2,891,699 million it claimed to be owed by 216 NorVergence customers from the states represented in the agreement.

This amount constitutes 85% of the debt owed to GE Capital from the period beginning on July 15, 2004, the approximate date that NorVergence ceased providing any services. Consumers who have made payments to GE Capital since July 15, 2004, will receive credit for those payments toward their remaining balance.

While GE Capital denies any wrongdoing, it has agreed to forgive the $2.89 million of the debt it claims consumers owe on rental agreements and provide up to two years for customers to pay any remaining balances.

In November 2004, Madigan filed a lawsuit against NorVergence, and Peter Salzano, its president. NorVergence is a telecommunications company based in Newark, New Jersey, that set up a sales office in Oakbrook Terrace. Madigan's lawsuit alleged the company's sales pitch offered small businesses discounted telecommunications services through the use of a "Matrix" box.

NorVergence claimed the device was necessary to allow a small business to reap a 30 percent discount on its current telecommunications costs, including long distance, DSL service, and wireless phone service. The total cost of agreements to lease the matrix boxes ranged from approximately $12,000 to $175,000.

Under NorVergence's alleged scheme, the company would sell its five-year contracts to leasing companies and walk away with the profit. When NorVergence was forced into bankruptcy in June 2004, its customers were left without service but still responsible for the five-year lease agreement payments to leasing companies.

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