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GE Capital Becomes Hero in NorVergence Scandal by Kit Menkin
In a surprise move, GE Capital made a settlement with New York Attorney General Eliot Spitzer and his staff regarding 100 approximate leases for the so-called "matrix box" and long distance telephone service from Norvergence, who filed Chapter 7 bankruptcy in July. The fact is GE Capital not only agreed to forgive about $2 million in claims against businesses in New York, but also will make money available to reimburse some of these companies who have been paying over the past few months, as part of the settlement. "I commend GE Capital for its decision to waive the bulk of the remaining payments," Spitzer said.
NY AG Eliot Spitzer "This agreement will bring an expedited resolution to many small businesses that were struggling to meet dead-end obligations while simultaneously paying for replacement telecommunications services," he concluded. "We worked with [Spitzer] to forge a proper settlement for those harmed by Norvergence, including ourselves," a GE spokesman told the New York Daily News. "This needed to be done. We're glad we could get it sorted out." While competitors may state GE Capital has the money to make such a settlement, they also have the most to fight it. They evidently weighed all the sides of the issue and decided it was best to "reach an agreement.” I certainly would be influenced by their business decision if I were a lessor involved in this mess. I think the overwhelming majority of attorney's work toward a settlement for all parties involved, rather than go to trial for a judgment. Leasing News has stated to both lessee's and lessors from the very beginning in this NorVergence scandal, it is a better business decision to "settle." Michael Scott Green, Class Counsel for the nationwide New Jersey class action, also working as a team with five other statewide class actions, had "no comment." Basically he wanted to read the terms of the settlement, which he had not seen at this date. Obviously those in the settlement will not become part of the class action suit. It is certainly quite different with a powerful office such as the attorney general of New York offering a resolution, at least with one lessor. The Equipment Leasing Association (ELA), the largest and most influential industry trade organization, sent a contingent of their top people here, in person, as they could see the writing on the wall. October 14, Equipment Leasing Association representatives met with five officials of the NY Attorney General for nearly three hours to discuss small ticket leasing practices in general in connection with the investigation of the NorVergence matter. ELA was represented by General Counsel Ed Groobert, President Michael Fleming and Paul Gamez, an executive with Great America Leasing. The meeting was held to review and reinforce certain legal principles fundamental to small ticket leasing and to discuss how small ticket leasing is conducted. The meeting concluded with a defining question. One senior staff member asked how frequent this kind of thing (NorVergence matter) occurs. Ed Groobert who has been counsel to ELA for 35 years and Michael Fleming who has been president for 25 years agreed that they had never seen anything like it. NorVergence is unique, it is a dramatic exception to the rule. The press release from Attorney General Spitzer on the settlement stated: “NorVergence's sales force was trained to apply deceptive and high pressure sales tactics to prospective customers, which included small businesses, not-for-profits, and religious institutions. Nationally, the company secured approximately 11,000 customers; nearly 1,000 in New York. “The company's customers typically signed five-year contracts, which the company then sold at a discount, to third-party financial institutions including GE Capital. The financial institutions, in turn then billed customers under the original contract terms. These multi-year commitments purported to obligate customers to pay as much as $340,000 for the matrix box, even though the market value of the devices was no more than $1,500. “Last summer, a federal bankruptcy court declared NorVergence bankrupt. As a result, customers were left without telecommunications services, and had to purchase alternative service, on a per call basis. Yet the financial institutions continued to bill customers for the discontinued services. Many of the financing institutions sued, both in New York and in states with which the customers had no contacts to collect on the agreements. “Pursuant to the negotiated settlement, GE Capital has agreed to honor the following conditions as they existed on July 15, 2004: “Forgive 85% of the remaining rental agreement balances; Forgive any late fees, penalties and property insurance charges; Credit any payments made; and Withdraw any adverse credit reports. In addition, Spitzer also formally notified 19 financial institutions of his impending legal action in connection with the fraudulent NorVergence telecommunications agreements. Institutions to whom notices were sent are: “Alfa Financial Corporation; BB&T Leasing Corporation; Celtic Bank Corporation; CIT Technology Financing Services, Inc.; Commerce Commercial Leasing, LLC; Court Square Leasing Corporation; DeLage Landen Financial Services, Inc.; Dolphin Capital; IFC Credit Corp.; Irwin Business Finance; Liberty Bank; National City Commercial Capital Corp. (formerly known as Information Leasing Corporation); Popular Leasing USA, Inc.; Preferred Capital, Inc.; Sterling Bank Leasing, Inc.; Studebaker-Worthington Leasing Corp.; TCF Leasing, Inc.; U.S. Bancorp Leasing and Financial, Inc.; and Wells Fargo Equipment Finance, Inc. Notices were also sent to Thomas Salzano and Peter Salzano as officers of the bankrupt NorVergence. “Consumers wishing to file a complaint pertaining to a NorVergence telecommunications contract may contact the Attorney General's toll-free consumer helpline (800) 771-7755, or visit our website at www.oag.state.ny.us. “This matter is being handled by Assistant Attorneys General Joy Feigenbaum, Keith Gordon, Shahla Ali and Andrew Davis under the direction of Susanna Zwerling, Chief of the Telecommunications and Energy Bureau, Thomas Conway, Chief of the Consumer Frauds and Protection Bureau, and Terryl Brown Clemons, Assistant Deputy Attorney General for the Division of Public Advocacy.” The attorneys general in other states, including New Jersey, Illinois, Pennsylvania, Florida and Texas are all pursuing legal action to stop the leasing companies from forcing payments. The Federal Trade Commission started its own probe into Norvergence, claiming the New Jersey-based bankrupt telecom defrauded investors. According to the New York Daily News, “Sen. Hillary Clinton had asked the FTC to investigate and, when the commission announced its probe, said she was ‘confident the announcement will result in justice being served'." She is following up on this in Washington, DC. NorVergence is in bankruptcy with all creditors given to basically the end of the year to make their claims on any assets that may be available. For Leasing News readers who have not been following our stories for the last two years about NorVergence, here are current articles: |
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