GE Capital Settles NY NorVergence Claims

December 6, 2004
GE Capital has agreed to forgive about $2 million in claims against New York businesses that signed agreements with NorVergence, a bankrupt New Jersey-based telephone equipment and service company, New York Attorney General Eliot Spitzer announced.

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"I commend GE Capital for its decision to waive the bulk of the remaining payments," Spitzer said. "This agreement will bring an expedited resolution to many small businesses that were struggling to meet dead-end obligations while simultaneously paying for replacement telecommunications services."

Spitzer served notice on other leasing companies that they faced imminent legal action if they did not grant relief to NorVergence customers. Spitzer's actions affect only NorVergence customers in New York.

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 through a high-speed service line.

NorVergence's sales force was trained to apply deceptive and high pressure sales tactics to prospective customers, which included small businesses, not-for-profits, and religious institutions, Spitzer said. 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 including GE Capital. The financial institutions, in turn then 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 devices was no more than $1,500.

Last summer, a federal bankruptcy court declared NorVergence bankrupt. As a result, 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. Many of the financing institutions sued the customers to collect on the agreements, even though the customers were receiving no service.

In its agreement with Spitzer, GE Capital has agreed to honor the following conditions as they existed on July 15, 2004:

• Forgive 85% of the remaining rental agreement balances;
• Forgive any late fees, penalties and property insurance charges;
• Credit any payments made; and
• Withdraw any adverse credit reports.

In addition, Spitzer also formally notified 19 financial institutions of his impending legal action in connection with the fraudulent NorVergence telecommunications agreements. Institutions to whom notices were sent are: Alfa Financial Corporation; BB&T Leasing Corporation; Celtic Bank Corporation; CIT Technology Financing Services, Inc.; Commerce Commercial Leasing, LLC; Court Square Leasing Corporation; DeLage Landen Financial Services, Inc.; Dolphin Capital; IFC Credit Corp.; Irwin Business Finance; Liberty Bank; National City Commercial Capital Corp. (formerly known as Information Leasing Corporation); Popular Leasing USA, Inc.; Preferred Capital, Inc.; Sterling Bank Leasing, Inc.; Studebaker-Worthington Leasing Corp.; TCF Leasing, Inc.; U.S. Bancorp Leasing and Financial, Inc.; and Wells Fargo Equipment Finance, Inc.

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