FTC Sues Bankrupt Reseller

In the latest chapter of a bankrupt telecommunications reseller, the Federal Trade Commission has charged NorVergence Inc. with defrauding consumers through claims that it could offer them years of savings on their telephone, wireless and Internet bills.

The New Jersey-based company promised customers a black box known as the ‘Matrix’ would be partly responsible for substantial savings, but the equipment NorVergence leased to customers for between $400 and $5,700 per month was “nothing more than standard telephone routers and had little or nothing to do with savings,” the FTC alleged in a news release announcing the lawsuit in the U.S. District Court for the District of New Jersey.

NorVergence sold the rental agreements on the Matrix boxes to finance companies for quick cash and used proceeds from those contracts to offer a few companies discounted service, but “the scheme collapsed when NorVergence was unable to provide services or pay its suppliers,” the FTC alleges.

Then, after the telecom provider filed for bankruptcy over the summer, NorVergence customers received some sobering news: The finance leasing companies asserted they were still responsible for monthly payments on the Matrix equipment even though NorVergence had stopped - or never began - delivering communications services.

The obligations businesses signed in the equipment rental agreements ranged between $30,000 and $180,000 even though the cost of the equipment was $1,500 per device, according to a lawsuit filed by Weir & Partners LLP. Approximately 10,000 non-profit, charitable, government and small business customers entered equipment rental agreements with NorVergence to lease Matrix equipment, according to the lawsuit.

NorVergence is being liquidated under Chapter 7 bankruptcy after failing to present a reorganization plan.

U.S. Bankruptcy Trustee Charles Forman, who is responsible for the company, had not filed a response to the FTC’s complaint as of late November, according to Bob Schroeder, assistance director of the northwest regional office for the FTC.

“There has been no answer filed yet, but we are talking with the trustee,” Schroeder said.

The FTC is seeking financial remedies for the NorVergence customers who were allegedly defrauded. The remedies sought may include restitution, cancellation of consumer debts and the cancellation of existing contracts.

State officials throughout the country also have issued subpoenas to investigate NorVergence and its relationship with the more than two dozen companies that hold equipment leases thousands of businesses signed with the Newark, N.J., reseller. In November, Illinois Attorney General Lisa Madigan filed a lawsuit against NorVergence, charging the company and its president, Peter Salzano, with violations of the Illinois Consumer Fraud and Deceptive Business Practices Act.

“NorVergence preyed upon small businesses that were trying to economize on their telecommunications services,” Madigan said in a news release. “Instead, they found the business equivalent of dead air when it came time to put those services to work.”

NorVergence is not the only entity being sued. In October, Florida Attorney General Charlie Crist filed a civil complaint against 12 leasing companies that purchased contracts from NorVergence beginning in 2003.

“Small businesses were hurt by the false, deceptive, misleading and unfair sales tactics used by NorVergence,” Crist said in a news release. “The leasing companies knew the scheme and compounded the harm by making intolerable demands to be paid for services that were unconscionably priced and never provided.”