The founders of a telecommunications firm that allegedly defrauded small businesses have settled Federal Trade Commission charges, ending a complicated two-year case.
Thomas N. Salzano and Peter J. Salzano, principals in now-bankrupt NorVergence, agreed to fully disclose terms when pitching telecom products in the future.
In addition, each received a $50 million judgment. Due to inability to pay, however, the entire judgment was suspended for Peter J. Salzano and $40 million of it for Thomas Salzano. The FTC will have a bankruptcy claim of $10 million against the latter.
Neither defendant admitted guilt.
According to the FTC, Newark, NJ-based NorVergence offered dramatic savings on monthly telephone, cellular and Internet bills. This was to be done through a “Matrix” black box that would be installed on customers’ premises.
But the Matrix boxes were “standard integrated access devices” that did not save users any money, the FTC alleged. NorVergence paid from $500 to $1,500 for the boxes, but charged from $400 to $5,700 for rentals, usually for a term of five years, the FTC alleged. The total cost to the customer could go as high as $340,000, the commission added.
In addition, NorVergence failed to disclose that it had “no long-term commitment from any service provider for the…services it was promising to provide to its customers,” the FTC stated in its complaint. And the firm did not reveal that the Matrix box would be “of little or no value…if NorVergence failed to provide the promised telecommunication services.”
Once it had a customer’s signature on the rental agreement, NorVergence would usually sell or assign the rental agreement to a third-party finance company, the FTC continued. The firm received over $200 million in upfront payments for non-cancelable rental agreements it sold to finance companies, the FTC added.
The victims of the scheme were small businesses, nonprofit groups, churches and municipalities, the FTC said.
In addition to the monetary loss, some victims were hit with litigation by finance companies, the FTC said. But more than 20 states have reached settlements with finance companies that purchased rental agreements form NorVergence.
NorVergence entered Chapter 7 bankruptcy in 2004. An FTC case against the firm ended with a default judgment in 2005.
