• Seven More Banks Settle Over NorVergence Contracts
  • September 19, 2006
  • Law Firm: Manatt, Phelps & Phillips, LLP - Los Angeles Office
  • Seven financial institutions have agreed to pay a total of $3.5 million to settle telecom fraud charges brought by New York State Attorney General Eliot Spitzer, according to an August 23, 2006 announcement by Spitzer’s office.

    As reported in the January 3, 2005, issue of [email protected], Newark, New Jersey-based NorVergence, which went bankrupt in 2004, began selling “matrix boxes” in 2002 to small businesses, promising they could save up to 60% on high-speed Internet, wireless, and toll-free telephone service, for a fixed monthly fee. Spitzer said the company used deceptive and high-pressure sales tactics to sell the devices to 11,000 small businesses, churches, and nonprofit firms, including 1,000 in New York state. Customers, who typically signed five-year contracts, were billed as much as $340,000 for the box, even though it had a value of about $1,500. NorVergence resold the contracts to third-party financial institutions.

    Customers were left without phone and Internet service when NorVergence went under, yet some third-party financial institutions continued to bill customers, and in some cases filed suit to collect the amount due. Including the new settlement, Spitzer said he has recovered more than $20 million for 854 small businesses and other customers who were victimized by the scheme. Thirteen firms previously settled with the Attorney General’s office.

    The new companies include: Popular Leasing USA, Celtic Bank Corporation, Dolphin Capital Corporation, Liberty Bank Leasing, National City Commercial Capital Corporation, Alfa Financial Corporation, and Partners Equity Capital Company. Combined, the seven firms had 159 customers in New York State.

    Significance: Spitzer has not alleged that the banks were aware of the fraudulent nature of the NorVergence agreements. Still, the matter illustrates how important it is to investigate the legality of a customer contract before purchasing it.