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Ohio Banks Affected by NorVergence Bankruptcy New Jersey company\'s legal woes involve NE Ohio companies Saturday, March 19, 2005 Mary Vanac Plain Dealer Reporter Some Northeast Ohio companies are caught up in the liquidation of a telephone equipment and services reseller accused of defrauding thousands of small businesses nationwide. NorVergence Inc. in Newark, N.J., falsely promised to cut the monthly telephone, cellular and Internet bills of small businesses, nonprofits and government bodies by at least 30 percent, according to the Federal Trade Commission, which sued the company for fraud in November. Company officials have consistently declined to comment on the charges. The FTC suit also says: The cost savings supposedly came from a \"black box\" installed in customers\' offices to send long-distance calls through the Internet. But the boxes were just standard telephone routers. They were rented to customers for between $400 and $5,700 a month but were probably worth only about $500. NorVergence used high-pressure sales tactics to get small businesses to sign five-year rental agreements as well as agreements for long-distance service from companies such as Qwest and Sprint. The company made an estimated $200 million by selling the rental agreements to finance companies nationwide, using some money to pay for customers\' telephone service. National City Commercial Capital Corp., a Cincinnati unit of Cleveland banking company National City Corp., and Preferred Capital Inc., an equipment lease broker in Brecksville, bought some leases. That entitled them to monthly payments from NorVergence customers. But NorVergence filed for Chapter 11 bankruptcy protection in June 2004. Soon after, a bankruptcy trustee converted the filing to a liquidation. Telephone service to NorVergence customers was cut off. The local finance companies say they are collectively owed $3 million. National City and Preferred Capital have continued collecting on the leases, even though customers are not getting service. New York Attorney General Eliot Spitzer has threatened both with lawsuits if they don\'t cancel leases for his state\'s businesses. A National City spokeswoman would say only that the company is working with individual customers. Unlike National City, which bought the leases with its own money, Preferred borrowed from local banks. The Brecksville company has sued hundreds of small businesses that have stopped paying on leases. But it\'s being sued itself by bank lenders. This month, Western Reserve Bank in Medina and Sky Bank in Salineville, Ohio, won judgments against Preferred for a total of $8.7 million. Preferred Capital President Alan Velotta declined to comment. Meanwhile, many former NorVergence customers are paying twice for telephone service - on the leases for nonexistent service as well as to a regular provider. In 2004, Guess Motors Inc. in Carrollton, southeast of Canton, signed lease and service contracts that included a long-distance and toll-free customer line for $1,200 a month, said owner Mike Guess. The car dealership had been paying an average of $2,000 a month for telephone service, Guess said. After two months of \"lousy service,\" NorVergence filed for bankruptcy protection, Guess said. He stopped paying on his lease, so Preferred Capital sued him earlier this month for the remaining value - $63,737. Guess understands that Preferred Capital is out the money it paid NorVergence. But he doesn't\'t understand how he can be expected to pay for service he\'s not getting. Some state attorneys general, including those in Florida, New York and Texas, are trying to get relief for small businesses. A spokeswoman for Ohio Attorney General Jim Petro said his office is looking into the issue. In December, General Electric Capital Corp. forgave lease payments of $2 million by former NorVergence customers in New York, in a settlement with Spitzer. GE Commercial Finance spokesman John Oliver said his company has since extended the same relief to all states, including Ohio. Key Equipment Finance, a unit of Cleveland banking company KeyCorp, also is a creditor in the NorVergence bankruptcy. But it appears Key leased equipment to NorVergence itself, not to the reseller\'s customers. A spokesman declined to comment because the matter is being challenged in court. Plain Dealer reporter Teresa Dixon Murray contributed to this report. To reach this Plain Dealer reporter:
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