Incorporated May 21,2000

Editorial

Lawrence C. Menkin, Publisher
*
Christopher Menkin, Executive Editor

Chairman, Advisory Board

Bob Teichman, CLP	Teichman Financial Training, Sausalito, CA.

Advisory Board

Bob Baker, CLP.	Wildwood Financial Group, Wildwood, MO.
Edward Castagna	Nassau Asset Management, Westbury, NY.
Steve Crane, CLP	Bank of the West, Walnut Creek, CA.
Phil Dushay	Global Financial Services, Manhattan, NY.
Steve Gabriel	Porter Novelli-Adv Tech Div, Campbell, CA
Ken Greene, Esq.	Larkspur, California
Shawn D. Halladay	The Alta Group, Salt Lake City, UT
Theresa M. Kabot, CLP	Kabot Commercial Leasing, Seattle, WA.
Robert S. Kieve	Empire Bradcasting, San Jose, CA.
Bruce Kropschot	Kropschot Financial Services, Vero Beach, FL.
Fred St. Laurent	SFBI Recruiters, Atlanta, GA.
Andrew Lea, M.A.	McCue Systems, Inc. Burlingame, CA.
Armon L. Mills, CPA	San Diego Business Journal, San Diego, CA.
Dan Pulcrano	Metro Newspapers, San Jose, California
Steve Reid, CLP	Pacific Capital Bank, Santa Barbara, CA.
Ginny Young	Brava Capital, Orange, CA.

"Call to Settle ASAP "

The Cleveland Scene printed story is being sent here in full, as well as the cartoon, due primarily to the link problem we had with the original e-mail.

Pete Kotz, editor of Cleveland Scene, gave Leasing News permission to reprint the article.

I think this is an important story for the equipment leasing industry. The cartoon is quite explicit. We are depicted as “bullies.” The bank ( and leasing companies) who bought these leases are the “bad guys.”

Now before you “naysayers” state “It's only a Cleveland magazine,” let me bring you to the fact that both Yahoo and Google have it in their news section, a search made it number three in my
last look; plus the list serves and blogs are passing it around to their readers, mostly small businesses.

The smart banks, financial institutions, and leasing companies who settled earlier saw the “perception” that was happening, and came to an intelligent business decision (which Leasing News has congratulated them in two editorials.)

The rest that continue are not only paying a higher price in out of pocket expense, but continue this public image. Leasing News calls for all those involved to settle these disputes not in a court of law or the press, and to do it as soon as possible.

Christopher Menkin, editor/publisher

Reprinted from Cleveland Scene with their permission
( clevescene.com)

Breaking the Bank

National City Bank invested in con artists. Now it expects victims to foot the bill.

By Jared Klaus

Article Published Jul 5, 2006

In early 2004, two businessmen from New Jersey flew to Cincinnati to make a sales presentation to the equipment arm of Cleveland-based National City Bank.

It was an internet phone system called the "matrix box," and it was revolutionizing phone service for thousands of small businesses.

Their company, NorVergence, wanted the bank to buy the boxes, then lease them to NorVergence customers, in much the same way as National City would finance a farmer's backhoe.

Ralph Martinez, the chief operations officer for the bank's subsidiary, liked what he saw. National City started buying leases by the hundreds, accumulating $10 million worth in a matter of months.

Then the bottom dropped out.

In June 2004, a cash-starved NorVergence stopped paying its phone bill. In response, the phone company cut off service to thousands of matrix-box customers. Soon after, NorVergence's creditors pushed it into receivership.

As the dust settled, what seemed like an honest venture began to look more like a scam. The Federal Trade Commission sued NorVergence, claiming that the company had created phony leases. A U.S. District Court judge ordered a $181.7 million judgment against the company. And the bankruptcy trustee filed complaints against the wife and son of NorVergence founder Tom Salzano, accusing them of siphoning hundreds of thousands of dollars in company funds for vacations, a luxury home, and expensive clothes. (A lawyer for Tom Salzano ignored repeated calls from Scene .)

NorVergence customers were left owing tens of thousands of dollars in lease payments for the matrix box, which -- without phone service -- would be worthless.

National City, however, isn't concerned about details. The fine print says that the leases are still good. So the bank is suing the small businesses to make them pay up.

Take the Scribner Insurance Agency in Denton, Texas. In May 2004, Ken Scribner, who runs the business with his father, signed up to receive three years of phone service at $600 a month. Two months later, he still wasn't able to make calls.

So he was surprised when he began hearing from National City's debt collectors. "They'd call every day at lunch," says Scribner. "They wanted us to start paying them for something we never even got."

Scribner thought he was signing a normal service agreement, the equivalent of a plan for a really expensive cell phone. But the devil was in the fine print: According to his contract, Scribner was paying not for the phone service, but for the lease on the matrix box.

"The lease says that they're paying on the equipment," says Bob Schroeder, of the Federal Trade Commission. "The consumer's obligation to pay isn't contingent upon getting services."

It was an ingenious scam. NorVergence turned around and sold the leases to banks like National City. By the time customers stopped paying on the deceptive contracts, NorVergence officers had taken the money and run.

Now the Scribners, along with hundreds of other small-business owners across the country, are being sued by National City for the full amount owed on the lease.

Texas Attorney General Greg Abbott sent National City a letter in October 2004, warning the company to back off victims like the Scribners. "We have reason to believe that these agreements are based on fraud and should be voided," reads the letter. (A spokesman for National City declined to comment.)

The threats are being taken seriously. Florida Attorney General Charlie Crist sued National City and 11 other leasing companies in 2004, alleging unfair and deceptive trade practices for trying to enforce the bogus contracts. Several other states have threatened similar action.

Many other lenders have torn up the bogus contracts or settled for pennies on the dollar. But National City is playing hardball.

"They're just a nasty little company," says Dallas attorney Scott Mackenzie, who represents the Scribners. "They'll take paper from anyone, and it's disgusting. You'd think if they're going to be throwing money out the door, they ought to have some idea who they're dealing with."

But because the Federal Reserve keeps baiting an economic boom with low interest rates, big banks like National City have moved into financing smaller-ticket items.

And the new economics makes for strange and often shady bedfellows. Prior to starting NorVergence, Tom Salzano was infamous for receiving the biggest Federal Communications Commission fine in history for "slamming" -- the illegal practice of changing a customer's long-distance carrier without permission.

The source of the problem has to do with the big banks' focus on volume, says Steve Reid, of Pacific Capital Bank in California, which turned down numerous offers to buy NorVergence leases. "The manager gets promoted, and by the time the shit hits the fan, he's already in a different department."

Everything about NorVergence sent up red flags, Reid says. "They were going to control everything . . . As soon as they described it, I knew we weren't doing anything."

Now customers are left holding the bag. If the Scribners lose their case against the bank, they'll be forced to take out a loan to pay for a service they never received. They can't believe that a reputable bank like National City would try to enforce the fraudulent service contracts.

"Are you gonna pay a bill for something you never got?" Scribner asks. "Get it hooked up, and we'll pay it."