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Attorney General Lockyer Announces Agreement Benefitting California Businesses, Non-profits

Popular Leasing Forgives Payments Owed On Leases for Fraudulent Telecom Service
Thursday, August 24, 2006
Contact: (415) 703-5837

(SACRAMENTO) – Attorney General Bill Lockyer today announced California businesses will receive up to $3.5 million in financial benefits under an agreement between his office and Popular Leasing U.S.A., Inc. (Popular) to resolve a case connected to a consumer fraud perpetrated by NorVergence, Inc., a bankrupt New Jersey-based telecommunications company.

“NorVergence scammed nearly 1,000 California organizations into buying its product,” said Lockyer, “and then scammed another forty companies into delivering its promises. 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 Popular provides a much-deserved remedy to over 150 defrauded California companies, non-profits and government agencies.”

Under the agreement, Missouri-based Popular will forego collecting on potential rental contract obligations totaling approximately $3.5 million. Popular is one of the finance companies that bought rental contracts from NorVergence. Combined with a June 2005 settlement with U.S. Bancorp, today’s announcement brings the relief obtained for California organizations defrauded by NorVergence to $6.1 million.

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 Popular.

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 9,000 nationwide, including about 1,000 in California. Most of these customers were small businesses, non-profit organizations and local government entities.

When NorVergence filed for bankruptcy, Popular 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. Popular’s venue of choice was its home state of Missouri, an extremely inconvenient forum for California businesses.

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

NorVergence victims in 20 other states and Washington D.C. also benefit from today’s settlement. Nationwide, Popular will refund or not collect over $15 million from nearly 650 consumers.

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