Ge Capital Settles Norvergence Claims

Attorney General Spitzer today announced a settlement with General Electric Capital Corporation (GE Capital) 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, GE Capital will forgive approximately $2 million in payments due from New York customers who had signed long-term contracts with NorVergence.

"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."

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. 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, both in New York and in states with which the customers had no contacts to collect on the agreements.

Pursuant to the negotiated settlement, 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. Notices were also sent to Thomas Salzano and Peter Salzano as officers of the bankrupt NorVergence.

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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