TELECOM Digest OnLine - Sorted: Norvergence Forfeits $47 Million to FTC

Norvergence Forfeits $47 Million to FTC

Consumer News (
Fri, 29 Jul 2005 00:42:54 -0500

Norvergence Forfeits $47 Million In FTC Settlement
Consumers Billed for Worthless Telecom Services

The Federal District Court in Newark, New Jersey, has entered a final
default judgment against NorVergence, Inc., that will immediately
result in the cancellation of 1,600 contracts with the company valued
at more than $47 million.

The judgment is the result of a November 2004 Federal Trade Commission
complaint charging NorVergence with defrauding consumers through
misleading claims that it would provide them with dramatic savings on
their monthly telephone, cellular, and Internet bills.

The court found that consumers signed a set of applications and
agreements with a total price equal to the promised monthly payments
over five years. Most of the total payments were allocated to rental
agreements for a "Matrix" or "Matrix Soho" device that supposedly
would provide the promised costs savings.

In reality, the Matrix was just a standard integrated access device
(IAD), commonly used to connect telephone equipment to a long-distance
provider's lines. The Matrix Soho was essentially a firewall.

The Matrix boxes cost between $200 and $1,550. The total cost to the
consumer was $7,000 to $340,000, with an average cost of $29,291. The
price of the rental agreement had nothing to do with the cost of the
Matrix, which itself was an incidental part of the promised services.

NorVergence had an estimated 9,400 Matrix rental agreements totaling
over $275 million. Other than the 1,600 contracts cancelled by this
judgment, NorVergence sold its rental agreements shortly after they
were signed to over 40 finance companies for cash. These sold
contracts are not immediately affected by the default judgment.

An unknown minority of these contracts were sold to finance companies
for only a part of their typical five-year term. The default judgment
makes these contracts void and unenforceable as of the end of the
partial term when they are due to come back to NorVergence.

The court also found that NorVergence failed to tell consumers that it
did not have a long-term commitment from any service provider for the
services it was promising to provide. NorVergence also failed to tell
consumers that the Matrix boxes covered by the rental agreement would
be of little or no value to them if NorVergence failed to provide the
promised telecommunications services.

Finally, the court found that NorVergence had furnished the finance
companies who purchased its contracts with the means and instrumental-
ities to commit deceptive and unfair acts or practices violating the
FTC Act. It provided those finance companies with rental agreements
that allowed the finance companies to: 1) misrepresent that consumers
owe money on the rental agreements, regardless of whether NorVergence
provided the promised telecommunications services; and 2) file
collection suits against consumers in courts far from where the
consumers are located.

The FTC worked cooperatively on this matter with various state
attorney generals' offices, which also have investigated NorVergence's
business practices. More than 20 states also have reached settlements
with some of the finance companies that purchased and are collecting
on NorVergence rental agreements. Consumers in these states should
contact their attorney general directly for further information on the
state settlements.

The states include: New Jersey, New York, Florida, Massachusetts,
Illinois, California, Maryland, Rhode Island, Delaware, Georgia,
Connecticut, Kansas, New Hampshire, Pennsylvania, Arizona, Indiana,
Ohio, Virginia, South Carolina, South Dakota, Texas, West Virginia,
North Carolina, and the District of Columbia.

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