Multi-state settlement benefits five Washington businesses that rented “Matrix” box with the unmet promise of lower phone and Internet bills

SEATTLE – Five small businesses in Washington state that lost phone and Internet services when their telecommunications provider, NorVergence, Inc., went bankrupt in 2004 will not have to pay the full amount due on their rental contracts, the Washington State Attorney General’s Office announced today.

Popular Leasing USA, Inc. (PLUSA) agreed to issue refunds or reduce the debt of nearly 650 former NorVergence customers nationwide as part of an agreement reached today with 21 states and the District of Columbia. (PLUSA) is one of several companies that owned the equipment and service rental agreements for the more than 9,000 consumers nationwide who signed up for NorVergence’s sham “Matrix” box on the promise that they would pay less for phone and Internet services.

“NorVergence deceptively marketed a telecommunications package to small businesses and nonprofits, who agreed to pay hundreds or even thousands of dollars a month for the services,” said Assistant Attorney General David Huey. “NorVergence then sold its rental agreements to a number of different finance companies including PLUSA. NorVergence went out of business soon after but the finance companies continued to bill consumers under the rental contracts.

“The states that negotiated this settlement allege that the rental agreements were void to begin with, and that the finance companies knew or should have known about the fraud perpetrated by NorVergence,” Huey said.

PLUSA denies any wrongdoing but has agreed to reduce the outstanding debt for customers who agree to the settlement offer and to correct any adverse credit information that resulted from customers not making payments. Nationwide, the company will forgive approximately $15 million in lease payments.

Huey said the settlement will put $27,012 back in the hands of Washington business owners, should they choose to participate. Not everyone will get a full refund and PLUSA would collect $4,836 from those customers.

To participate, customers must pay all charges, late fees and taxes owed through July 15, 2004. PLUSA will forgive 85 percent of the remaining contract balance thereafter or 80 percent in the case of customers who previously settled with the company. Settlement letters will be going out from PLUSA to affected businesses within the next 30 days. The businesses will then have 35 days to respond.

NorVergence advertised a “Matrix” box purported to deliver unlimited broadband, landline and cell phone service with no per-minute charges. Customers who rented boxes typically agreed to pay $500 to $2,000 per month for a period of three to five years. However, the boxes did not provide the advertised services. The Federal Trade Commission contended that the boxes were actually standard integrated access devices or sometimes just firewalls that did not save customers money.

NorVergence sold the rental agreements to approximately 40 different finance companies. The company was forced into bankruptcy by its creditors in June 2004.

Besides Washington, the following states participated in the PLUSA agreement: California, Colorado, Connecticut, Delaware, Georgia, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Missouri, New Hampshire, North Carolina, Ohio, Pennsylvania, Rhode Island, West Virginia, and the District of Columbia.

Eight other finance companies have also previously agreed to reimburse customers under agreements reached by the states.

The Federal Trade Commission sued NorVergence, alleging that the former New Jersey-based company’s business practices violated consumer protection laws. The FTC settled charges against the company’s founders, Thomas N. Salzano and Peter J. Salzano, in June. The final court orders bar the Salzanos from engaging in all fraudulent and deceptive conduct alleged in the complaint, require them to make specific disclosures when pitching products in the future, and subject them each to $50 million judgments, which were mostly suspended.

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Media Contacts:

Kristin Alexander, Public Information Officer, (206) 464-6432, kalexander@atg.wa.gov

David Huey, Assistant Attorney General, (253) 593-5057