States Probing NorVergence Collapse

September 29, 2004

NorVergence • Consumer Complaints • Inside NorVergence --- News • FTC Resolves NorVergence's Unfinished Business • FTC Sues Company for Financing NorVergence Scheme • Texas Sues NorVergence Debt Collector • States Settle NorVergence Claims with 10th Leasing Company • FTC Settles NorVergence Case • Norvergence Forfeits $47 Million In FTC Settlement • California Settles with USB Leasing • States Settle with Three Leasing Companies • GE Capital Agrees to NorVergence Settlement • Leasing Companies Release Florida Customers from NorVergence Leases • Massachusetts Sues NorVergence • Illinois Sues NorVergence • FTC Charges NorVergence • Florida Sues 12 Leasing Companies In NorVergence Case • States Open Investigation

State and federal officials are stepping up their consumer fraud investigations into the bankruptcy of Newark, NJ-based NorVergence, which left more than 11,000 small business customers without telephone or Internet service but saddled with huge debts and litigation.

"Small businesses have been hit twice," said Illinois Attorney General Lisa Madigan. "First by NorVergence Inc. with its allegedly fraudulent sales pitches and financing agreements, and next by the leasing companies that are trying to collect money even though the small businesses are receiving no service in return."

Madigan said that businesses were charged monthly payments ranging from $200 to $2,300 that would total $10,000 to $150,000 over the life of five-year agreements for the Matrix boxes. She said the hardware is worth around $500 and has no value unless attached to a phone carrier's network.

After signing up customers, NorVergence sold its lease agreements to dozens of financial companies across the country which continue to seek lease payments.

Many victims also lost business. "Today is the eighth day without (Internet) service. We are losing customers during the holiday travel season since our business is travel," Avani, a travel agent, told ConsumerAffairs.com last November.

New Jersey prosecutors have issued subpoenas to 26 banks and leasing companies, asking for documents detailing their business deals with NorVergence, the Newark Star-Ledger reported. At the same time, the financial services companies were ordered to "cease and desist" litigation against NorVergence customers who stopped making payments after the phone company went out of business.

It's the latest twist in the strange life and demise of NorVergence, a phone services reseller that persuaded businesses to take out five-year leases on expensive telephone equipment, with the promise that they would enjoy huge savings in their telephone and Internet costs.

When the company ran out of cash and shut down in July, it left thousands of small businesses without service while creditors were left with tabs totaling $30 million or more.

Investigators say that when a customer signed a NorVergence lease, the company was quick to sell the leases at a discount to such major financial service companies as Wells Fargo and U.S. Bancorp. Even though many customers say that service never began, the finance companies have been demanding payment.

The Federal Trade Commission, FBI and several states are conducting investigations. Florida recently issued a cease-and-desist order to 12 leasing companies.

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