AG sues to stop apparent telecom scam

Massachusetts Attorney General Thomas F. Reilly moved yesterday to rescue nearly 200 Bay State businesses from an apparent telecommunications scam that bound many to pay $100,000 or more for a black-box device called "The Matrix" that turned out to be worthless.

Following the lead of several other state attorneys general and the Federal Trade Commission, Reilly filed a lawsuit in Suffolk Superior Court aimed at allowing Massachusetts businesses to break their service contracts with NorVergence Inc. The Newark phone company was forced into bankruptcy last summer by its creditors.

NorVergence had promised small businesses, churches, and other customers savings of 35 percent or more on their phone bills, including deep discounts on wireless services, as long as they rented a special Matrix device for anywhere from $400 to $5,700 a month. The Matrix, however, was actually a garden-variety piece of office telecom-closet gear called an integrated access device that would cost as little as $500 to buy. The device had nothing to do with the price of the phone service delivered through it, authorities said.

NorVergence began selling service in Massachusetts in March 2003, falsely representing that it was associated with telecom giant Nortel Networks Ltd. NorVergence quickly sold the inflated equipment rental contracts to several finance companies after persuading customers to sign language obligating them to keep paying for the Matrix boxes no matter what happened, even if NorVergence went out of business, according to Reilly's suit.

"It was a well-perpetrated fraud -- there's no doubt that these guys knew what they were doing," said Bill Ambrosino, president of Ambro Adjustment, a 28-employee Hopedale company that appraises automobile accident damage for insurance companies. Ambro is on the hook for $121,000 in Matrix rental payments through 2008, he said. "The box is absolutely worthless."

Ambrosino said he switched to NorVergence from previous provider Conversent Communications after a salesman promised him NorVergence could cut $1,000 a month from Ambro's $3,800 average phone bill. Ambrosino said he has since switched back to Conversent, but is continuing to pay leasing companies in New Jersey and Missouri for the fraudulent rental contract because it is cheaper and less trouble than getting sued by them.

Charles Forman, a New Jersey attorney who is serving as bankruptcy trustee for NorVergence, said he has no plans to pursue customers for nonpayment of NorVergence contracts.

"The company has not been operating since June or July, nor will it be operating," Forman said, adding that it may be necessary for former customers trying to get out of fraudulent contracts to bring action against the leasing companies that acquired the rental income streams from NorVergence.

Bankruptcy court filings show that virtually none of the hundreds of millions of dollars in upfront payments NorVergence collected can be found, according to Reilly's suit. The company, founded by brothers Peter Salzano and Thomas N. Salzano in 2001, grew to annual revenues of $143 million in 2003 and once had over 1,700 employees in 38 cities, according to news reports. Efforts to reach the Salzanos yesterday failed.

Reilly's suit seeks unspecified damages against NorVergence for violating the state's consumer protection laws. Assistant attorneys general Karlen J. Reed and Geoffrey G. Why are also asking a judge to authorize "reformation or rescission of contracts and the cancellation of purported debts" as part of any verdict against NorVergence. Besides Reilly, attorneys general and officials in Colorado, Florida, Illinois, New Jersey, Pennsylvania, and other states are all pursuing legal action against NorVergence and its affiliated finance companies as well.

Peter J. Howe can be reached at howe@globe.com.