August 22, 2005

Four financial institutions are forgiving $2.8 million in payments due from New Yorkers, who signed long-term contracts with NorVergence Inc., a bankrupt New Jersey-based telecommunications company.

New York Attorney General Eliot Spitzer announced the settlements late last week and warned that his office is prepared to take legal action against as many as 12 other companies still involved in fraudulent contracts for NorVergence.

So far, more than 700 New York customers have received more than $16 million in relief. The Federal District Court in Newark, New Jersey issued a final default judgment against NorVergence last month, canceling $47 million worth of contracts after the Federal Trade Commission charged the company with defrauding customers throughout the United States.

The institutions will forgive late fees, penalties and property insurance charges while crediting all payments made after service was terminated. They will also withdraw adverse credit reports and cease lawsuits against customers who agree to the settlement.

Those who settled under less favorable terms will receive refunds, according to a statement from Spitzer's office on Thursday.

Since 2002, NorVergence promised up to 60 percent savings on telecommunications products through an innovative device called the "Matrix box." The company sold services in a bundle, offering a variety of features including T-1, landlines, broadband, and cell phone service. Customers were told the blue Matrix box would provide wireless, toll-free telephone service and high-speed Internet access for a monthly fee.

"The equipment performed none of these functions," Spitzer's statement said. Instead, it contained a firewall and router, allowing voice and data transmission over high-speed service lines.

Spitzer's office claims the Newark, N.J.-based company used deceptive and high pressure sales tactics to lure about 11,000 small businesses, not-for-profits and religious institutions. About 1,000 of those customers were from New York.

Most customers signed five-year contracts, which NorVergence sold to financial institutions. The institutions then ordered customers to pay up to $340,000 for the Matrix boxes, which had a top market value of $1,500.

After NorVergence declared bankruptcy last summer, customers lost service but were still ordered to comply with the contracts. In some cases, they were sued.

Qwest Communications claimed in U. S. Bankruptcy Court in New Jersey, that NorVergence owed it more than $18 million. That filing stated that NorVergence once had 38 nationwide offices and 1,200 employees and a roster of top engineers from Lucent Technologies, Cisco Systems and IBM.