Illinois Sues NorVergence

November 4, 2004
Illinois is the latest state to sue NorVergence. Illinois Attorney General Lisa Madigan says she has received more than 200 consumer complaints from the company's small business clients. She says NorVergence left hundreds of small business owners in Illinois without telephone and Internet services while threatening collection actions.

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The Federal Trade Commission filed suit against NorVergence yesterday and states including New Jersey and Florida are also pursuing legal action.

"NorVergence preyed upon small businesses that were trying to economize on their telecommunications services," Madigan said. "Instead, they found the business equivalent of dead air when it came time to put those services to work. It's hard enough to make it as a small business without predatory service providers. We are taking every effort to see that NorVergence is held accountable."

NorVergence was forced into bankruptcy in June, 2004, leaving its customers without service but still responsible for five-year rental agreement payments to leasing companies. The total cost of those leasing agreements ranged from approximately $12,000 to $175,000. Under NorVergence's alleged scheme, the company would sell the full five-year contract with a small business to a leasing company and walk away with the profit.

Madigan's lawsuit charges NorVergence, Inc. and Peter Salzano, individually and as president of NorVergence, with multiple violations of the Illinois Consumer Fraud and Deceptive Business Practices Act. Allegations against NorVergence stem from the company's false representation of its product and services to customers.

According to Madigan's lawsuit, a NorVergence sales person typically offered to provide discounted telecommunications services using "voice phone calls as fast data." NorVergence included a "Matrix" box as part of the deal, claiming that this 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. NorVergence representatives allegedly claimed the "Matrix" box would achieve the savings by converting voice calls into data.

Madigan's suit alleges the "Matrix" box failed to perform as promised and is worth only about $500, although NorVergence charged businesses between approximately $200 to $2,900 per month for rental of the "Matrix" box and its telecommunications services. After reaching extended service agreements with its customers, NorVergence then assigned those agreements to leasing companies to collect payments.

After NorVergence was forced into bankruptcy by its creditors, the leasing companies continued to demand payment from small businesses for telecommunication services that had already been shut off. In situations where the small businesses refused to submit monthly payments, the leasing companies have been accelerating the terms of the contract and demanding full payments of the five-year agreement.

On Monday, September 13, Madigan issued subpoenas to eight leasing companies currently attempting to collect payment from Illinois customers of NorVergence. Madigan requested information regarding their discussions with NorVergence and the manufacturers of the Matrix boxes, and asked the leasing companies to refrain from collecting from Illinois consumers.

The lawsuit asks the court to find that the NorVergence contracts are the result of fraud and, therefore, must be considered null and void. Madigan's suit also asks the court to prohibit NorVergence from future violations of Illinois' consumer protection laws. Additionally, the suit seeks civil penalties in the amount of $50,000 per violation, restitution for consumers and payment for the cost of investigation and prosecution.

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