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California Settles with NorVergence Leasing Co.

June 13, 2005
California businesses will receive up to $2.6 million in financial benefits under an agreement between Attorney General Bill Lockyer and U.S. Bancorp (USB), resolving a case connected to a consumer fraud perpetrated by NorVergence, Inc., a bankrupt New Jersey-based telecommunications company.

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“NorVergence scammed nearly 1,000 California small businesses,” said Lockyer. “And when it went under, NorVergence left its victims on the hook to pay thousands of dollars for nonexistent service and high-priced equipment. This agreement with U.S. Bancorp provides a much-deserved remedy to defrauded California companies.”

Under the agreement approved by the San Diego County Superior Court, USB subsidiary Lyon Financial Services (Lyon), Inc. will forego collecting on potential rental contract obligations totaling approximately $2.6 million. USB is one of the finance companies that bought rental contracts from NorVergence.

Starting in 2002 until its bankruptcy in July 2004, NorVergence defrauded small businesses across the country in marketing and selling telecommunications services and equipment. NorVergence promised victims multi-year savings of up to 30 percent on their phone, cellular and Internet bills.

The savings would be produced, NorVergence told customers, by a “Matrix” black box installed on businesses’ premises that would allow customers to integrate their telecommunications systems. The Matrix services cost businesses between $500 and $2,000 a month under rental contracts that typically lasted five-years. For fast cash, NorVergence sold the contracts at a discount to about 40 finance companies, including USB.

Contrary to NorVergence’s representations, there was nothing special about the Matrix black box. It was nothing more than standard routing equipment that had no value without a connection to phone carriers’ networks. NorVergence had no means to guarantee the long-term savings it promised because it had no long-term contracts with carriers.

NorVergence’s victims totaled an estimated 11,000 nationwide, including about 1,000 in California.

When NorVergence filed for bankruptcy, USB and other finance companies that bought the rental contracts demanded that businesses continue making payments under their five-year agreements, even though the businesses were not receiving the promised services.

The contracts purported to require customers to pay in full even if they received no services. Additionally, customers often found it difficult to challenge charges because the contracts allowed the finance companies to pursue collection lawsuits in venues far from customers’ locations. USB’s venue of choice was its home state of Minnesota, an extremely inconvenient forum for California businesses.

Under the settlement, customers will have the opportunity to bring their contract current through January 31, 2005, and will have the option of making such payments in installments. In return, USB will forgive the balance of the contract obligations. If all California customers accept, USB will forgive about $2.6 million in payments.

USB will mail to eligible customers a notice advising them of the opportunity to participate in the settlement, with instructions on how to participate.

As part of the settlement, USB has agreed to not enforce the provision of the rental contracts that purportedly allows USB to choose the venue to resolve disputes.

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