Been There, Done That

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Before NorVergence, there was Minimum Rate Pricing.

Both companies were telecommunications resellers in New Jersey, fell victim to bankruptcy, faced investigations questioning their business practices and both involved a family: brothers Peter and Thomas Salzano.

Minimum Rate Pricing, which listed assets of $33 million and liabilities of $116 million in a 1999 bankruptcy filing, settled a record $1.2 million agreement six years ago with the FCC over complaints that it switched customers' phone services without their permission and committed other violations.

It also entered a $1 million agreement with 19 states related to allegations of slamming and had its license revoked in parts of the country, including Nebraska, Tennessee and Wisconsin, marking the first time in three years the Tennessee Regulatory Authority banned a company from conducting business in the state.

"The record reflects that [Minimum Rate Pricing] has a pattern of failing or refusing to appear before regulatory bodies or ignores the regulatory body even when its certificate is at issue," the Tennessee Regulatory Authority said in a filing.

Today, NorVergence is the subject of numerous probes and lawsuits in a case authorities are investigating to uncover whether, and precisely how, the company deceived thousands of customers. The telecom reseller, which used Qwest Communications International Inc., Sprint Corp. and T-Mobile USA to support wireline and cellular services, was founded in 2001 by NorVergence Chairman and CEO Peter J. Salzano, according to the NorVergence Web site. Thomas Salzano was the president of Minimum Rate Pricing.

NorVergence was forced into Chapter 11 bankruptcy this summer by three creditors: Popular Leasing, OFC Capital and Partners Equity Capital Co. A judge converted the case into a Chapter 7 bankruptcy to liquidate assets after the company failed to present a reorganization plan.

NorVergence reported 2003 revenue of $98.3 million and a net operating loss of $8.6 million, according to a filing with the New Jersey Board of Public Utilities.

U.S. Bankruptcy Trustee Charles Forman did not return phone calls seeking comment, but state officials from New Jersey to Florida to Illinois have issued subpoenas to investigate NorVergence and its relationship with more than two dozen companies that hold equipment leases thousands of businesses signed with the Newark, N.J., reseller. States also are seeking details involving equipment manufactured by ADTRAN Inc. ADTRAN declined to comment. A lawyer retained by NorVergence did not respond to a request for comment. A lawyer representing Peter Salzano also did not immediately return a call.

The hardware in question is an integrated access device called the "MATRIX." An integrated access device allows voice and data connections to be routed through the same equipment at the customer location.

In a news release announcing the issuance of subpoenas to 12 leasing companies, Florida Attorney General Charlie Crist said small businesses have signed multiyear agreements to pay between $450 and $1,200 per month for use of the MATRIX and are being pressured by the leasing companies to pay for service that never was activated. CIT Technology Financing Services Inc., Commerce Commercial Leasing, Court Square Leasing Corp. and Wells Fargo Financial Leasing Inc. are among the leasing companies.

"Demanding full payment for a device that did not deliver the promised service, and in some instances was never even installed, is preposterous," according to a statement issued by Crist, who demanded the leasing companies refrain from requesting payments pending the outcome of the investigation. Crist is working with other states and federal agencies in the investigation.

Illinois Attorney General Lisa Madigan said in a press release the MATRIX did not perform as promised and is worth approximately $500, although NorVergence charged businesses between about $200 to $2,300 per month for rental of the box and its telecommunications services.

Meanwhile, lawsuits have been filed to prohibit more than two dozen leasing companies from enforcing the equipment lease agreements. Attorney Michael Green has filed a class-action suit against the leasing companies in Monmouth County, Superior Court of New Jersey. The case is Exquisite Caterers v. Popular Leasing USA Inc. Popular Leasing did not return a phone call seeking comment.

Green says he is not suing NorVergence, noting it is "entirely likely there is no money ... to get," but he is asking the court to void the leases and is requesting damages.

Businesses who subscribed to NorVergence's services were promised savings on their bills by entering the lease agreements to rent the MATRIX, but NorVergence critics say there is no relationship between the piece of equipment and savings on telecommunications services.

"In fact, often the equipment itself was not necessary for the clients to access their landline phone or Internet access at all," the lawsuit alleges, "and it was frequently not installed by NorVergence installers, or just plugged into power outlets without connection to a network or phones so that the power lights blinked."

The law office of Weir & Partners LLP also has filed a lawsuit against the leasing companies, stating the total amount of obligations businesses signed in the equipment rental agreements for a particular MATRIX device ranged between $30,000 and $180,000 even though the cost of the equipment was $1,500 per device.

"In reality, there is no technological relationship whatsoever between NorVergence's offer of "free unlimited" telecommunications services and the MATRIX devices," the lawsuit states.

Approximately 10,000 non-profit, charitable, government and small business customers entered equipment rental agreements with NorVergence to lease MATRIX equipment, according to the lawsuit.

Jeanne Burns, president of San Franciscobased Thornley & Pitt Inc., a 10-employee customs house broker, is one of those small business owners. She says her firm is being sued by U.S. Bancorp, which purchased a lease from NorVergence on equipment that was installed but never functioned. The company signed up with NorVergence in April, Burns says, but never received phone service or a T1 line. The business did receive cellular service from NorVergence for about a month and a half, but NorVergence never paid the cancellation fees as they promised, Burns says, leaving her with $800 in cancellation charges.

"The [U.S. Bancorp] group says I am responsible for five years of monthly payments even though there was never any T1 line, no phone lines or any other service" beyond the cell service for one and a half months, she says.

"The leasing companies had to know the people were expecting phone service, not the lease of equipment," Burns adds. "I think it is a sign of the corporate greed that is in this country. I think that the government is allowing this kind of crap to go on and it's irritating."

A U.S. Bancorp spokesman did not immediately return a call seeking comment.

Links

ADTRAN Inc. www.adtran.com
FCC www.fcc.gov
Popular Leasing USA Inc. www.popularleasing.com
Qwest Communications International Inc. www.qwest.com
Sprint Corp. www.sprint.com
Tennessee Regulatory Authority www.state.tn.us/tra/
T-Mobile USA www.t-mobile.com
U.S. Bancorp. www.usbank.com
Weir & Partners LLP www.weirpartners.com

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