Defrauded Convergence Customers To Receive Additional $11 Million In Relief

Attorney General Spitzer today announced settlements with five leading financial institutions in connection with a widespread telecommunications fraud involving NorVergence, Inc., a bankrupt New Jersey-based telephone equipment and service company.

Under the terms of the agreement, the financing companies will forgive approximately $11 million in payments due from New York customers who had signed long-term contracts with NorVergence. Earlier this month, Spitzer announced a $2 million settlement with GE Capital regarding similar NorVergence contracts. The $13 million forgiven under all of these settlements provides relief to more than half of NorVergence customers in New York.

"I am pleased to announce that these financial institutions have agreed to forgive the bulk of the outstanding balances on New York customers' NorVergence leases. I particularly commend TCF Leasing Inc. for its willingness to forgive all outstanding balances on a nationwide basis," said Spitzer. "These settlements bring a resolution to many small businesses that were struggling to meet obligations while simultaneously paying for replacement telecommunications services."

The chart below outlines the terms of the settlements:

LEASING COMPANY
TOTAL DOLLARS FORGIVEN
(Outstanding Balances as of July 15, 2004)
SETTLEMENT THRESHOLD
CIT Technology Financing Services, Inc. (CIT Group/Equipment Financing Inc.) $4.2 million 90 percent
DeLage Landen Financial Services $405,000 90 percent
Lyon Financial Services, Inc. (dba U.S. Bancorp Business Equipment Finance Group) $2.3 million 90 percent
TCF Leasing, Inc. (dba TCF Express Leasing) $1.43 million 00.sh 0.log 0.sh 1.sh 2004_apr.csv 2004_dec.csv 2004_jan.csv 2004_jun.csv 2004_mar.csv 2004_oct.csv 2004_sep.csv 2.sh 9.sh apr aug dec feb jan jul jun mar may nov oct sep 100 percent
Wells Fargo $2.9 million** 90 percent

* Reflects a multi-state settlement
00.sh 0.log 0.sh 1.sh 2004_apr.csv 2004_dec.csv 2004_jan.csv 2004_jun.csv 2004_mar.csv 2004_oct.csv 2004_sep.csv 2.sh 9.sh apr aug dec feb jan jul jun mar may nov oct sep Estimated

In addition, the settlements forgive any late fees, penalties and property insurance charges after termination of contracted services and credit any payments made which exceed the settlement threshold. The financial institutions will issue refunds to customers where payments exceeded amounts due under the settlements and will terminate all litigation and withdraw any adverse credit reports against former NorVergence customers who elect to participate in the settlements. They will also offer the settlement terms to customers who have already settled on less favorable terms.

Currently, 15 other financial institutions are facing impending legal action in connection with the fraudulent NorVergence telecommunications agreements. Those institutions include:

Alfa Financial Corporation; BB&T Leasing Corporation; Celtic Bank Corporation; Commerce Commercial Leasing, LLC; Dolphin Capital; IFC Credit Corp.; Irwin Business Finance; Liberty Bank; Madison Capital LLC (dba Madison Capital Equipment Leasing, Inc.); National City Commercial Capital Corp. (formerly known as Information Leasing Corporation); Popular Leasing USA, Inc.; Preferred Capital, Inc.; R-G Crowne Bank (dba Crowne Bank Leasing); Sterling Bank Leasing, Inc.; Studebaker-Worthington Leasing Corp. Notices were also sent to Thomas Salzano and Peter Salzano as officers of the bankrupt NorVergence.

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 consisted largely of small businesses, not-for-profits and religious institutions. Nationally, the company secured approximately 11,000 customers; with 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. The financial institutions, in turn, 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 device 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 to collect on the agreements both in New York and in states in which the customers had no contacts.

Consumers wishing to file a complaint pertaining to a NorVergence telecommunications contract may contact the Attorney General's toll-free consumer helpline (800) 771-7755, or visit our website at www.ag.ny.gov.

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