Norvergence

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NorVergence, incorporated as NorVergence, Inc., was a Newark, New Jersey corporation that, prior to going bankrupt in July 2004, sold telecommunications services and related products to small businesses, nonprofit organizations, churches, and municipalities. Its sudden collapse caused it to not be able to pay its debts and payrolls, and thus become the subject of an intense two year investigation looking for fraud and or anything else the government could find. However, there was nothing more than a large business failure uncovered by a substantial company operation that had previously served thousands of connected customers for years.

Founded by telecommunications gurus from Nortel Networks, NTC, and Lehman Brothers Technologies Group in 2001, in its three year existence NorVergence hired 1,800 sales and other employees and in had revenues of $143 million. Having a contractual written Strategic Alliance agreement with Nortel Networks signed by Nortel’s Senior VP Of Northeast Marketing, the company started cold calling companies promising huge saving on their internet and phone bills, often up to. The company's motto was "Drastically Reducing Telecommunications Costs". The company engineered and created in conjunction with numerous scientists at Nortel, Adtran, and Meta Switch a 'Merged Access Transport Intelligent Exchange (MATRIX) device for short, that would eliminate per minute charges for telecommunications services on T-1's supplied by the Company. The firm charged a flat fee and arranged financing for the rental of the MATRIX device for a period of usually 5 years. The MATRIX "black box" in point of FACT was NOT a standard integrated access device, as was written FALSELY by some critics and competitors commonly used to connect telephone equipment to a long-distance provider's lines. In point of FACT no Adtran Router purchased at staples could connect cold to Norvergence T-1's and do anything with Adtran standard off the shelf code. Only Norvergence software on its connected Matrix T-1 IAD could cause 32 voice lines of toll calling to simultaneously exist with 512k internet traffic on ONE T-1. This feature set still not being available from the three monopoly carriers in the market place today.

How the Business Plan Operated - and was alleged to be a pyramid scheme NorVergence sold packages of telecommunications phone systems and high level routing equipment with hardware and services bundled together. The total lease payments for hardware and total service revenue to have been collected on any given contract FAR exceeded the cost to provide the hardware and services thereby genrating a large gross profit. Many however assumed that because services were sold so cheap this meant the company operated much like a Pyramid scheme not understanding that the Norvergence technology platform had in fact reduced the cost of operating a telecom network 95%. The telecommunications company claimed it was able able to offer savings because of its unique network design and long-term contracts with established telecommunications providers.

In point of fact the Company’s product and network design was entirely new to the industry based on the concept of one central Network Center Hub and “spokes” of Matrix network devices located at the Customer premises

It did in fact provide service in the NY/NJ/PA/IL/DC/FL area for 2 years and maintain contracts for 5 years with Quest and MCI on every circuit it installed. However its hyper-expansion into every potential market in the country in a one year period became too fast a growth for it's own installation department to keep up with.

When the company backlogged 4000 T-1 orders in the west and southwest (primarily due to the SBC 90 day strike) a huge recurring and upfront funding of leases cash flow went uncollected. This proved the company's on doing. If this business plan had been a pyramid scheme the senior management would have had charges brought against it. However, when total revenues exceed total costs, the profit motive is evident. In addition, the Company had 7,500 customers connected and serviced for 21/2 years paying their bills faithfully, not "investors" promised returns in exchange for nothing. Obviously, with customers - not investors - receiving substantial value for what they paid for, and material real Company operations in 35 states and remote offices, the Company could not qualify as a "Ponzi Scheme" or pyramid and the falsity of this allegation became clear. Salespeople with some telecommunications background were hired by the organization. The Company made sure that the people they hired, understood the basic workings of telecommunications, and did have the basic technical skills to sell the product. After the initial sales push in the local NJ area the company then did a national sales blitz, opening up physical facilities all over the country. Salespeople were required to follow a rigidly constructed script several pages long that had to be given verbatim to potential customers.

Keeping Sales People in Line Salespeople were called screening managers, and their job, as far as the customers were concerned, was not to sell the product, but rather explain the service and get all of the information needed to submit their 'applications'. NorVergence's policy was that they screened companies for the right fit, not everyone received service, and it was the screening manager's (salepeople's) job to 'screen' them and make sure there wasn't any reason to disqualify them, and make sure all of the paperwork was submitted correctly. Part of the script even asked the customer if there was any reason they should be disqualified, at which point the screening manager was told to say NorVergence might disqualify them, but they would submit the paperwork anyway just to see if they could get accepted for the service. The company constantly played with the way they would pay its salespeople. The Company made deductions to their commissions according to the terms of their employment contracts prior signed and disclosed for minute issues such as customer paperwork. They also constantly spot-tested sales peoples' scripts (which they kept changing) for a variety of things, as a method of intimidation (those unable to give the script verbatim were first given a warning, then fired). NorVergence also forced salesmen to turn in a minumum of 30 business cards a week from other companies in the area, which were turned into corporate to set up new appointments", even though the salesmen were promised when hired that they would not be forced to cold call. NorVergence also manipulated salespeople and kept them in line by not paying commissions until the hardware was installed, which usually would not be a problem with established telecom businesses, but since most of the regional offices had only been existence for a month or two, the salesmen had no idea that they would not be paid on the bulk of their sales". The majority of the 1,800 sales representatives hired by NorVergence were inside sales representatives whose job was to make appointments for NorVergence's screening managers and the Decision Makers of these companies. Thus, the Company had massive internal facilities and operations to manage and control costs on. NorVergence Abruptly Closes Shop and Declares Bankruptcy Once NorVergence had moved into as many regional markets as possible and pitched every business in the area, NorVergence would sell the leasing agreements to banks (ex. Wells Fargo), and the banks would be left with the leasing agreements that they hoped - wrongly - would force Norv customers to continue to pay for the hardware leases for 5 years without having the bundled in service. However, because NorVergence grew so quickly backlogging 4000 circuits and funding orders by March of 2004, the funding flow from the banks trickled down to a minimal amount because they could'nt get caught up. Thus, the senior management literally walked into their corporate headquarters out of the blue one day, told everyone in the office that the company was shutting down, they would not be getting any severance pay, or even their last salary check. Effects on Customers who Lost Service and Were Sued After the company was placed into involuntary bankruptcy through a petition filed by attorney Peter Deeb, companies that had signed up for the service still had their leasing bank attempt to collect these third party finance bills because, in the fine print of the rental agreements, NorVergence stipulated that the finance companies could insist on full payment from customers even if it failed to provide the services it had promised The banks, fearing major losses, used strong arm collection tactics, foreign venue clauses, threats of lawsuits and other tactics to collect money. Therefore companies were attempted to be forced to pay for a service that they weren't getting. Over time courts have invalidated these leases in numerous states and in others the Consumer AG Agency simply told the banks to settle it. (ex. Texas [1] and [2], Illinois [3] and Ohio [4]) Numerous Lawsuits Filed To date, lawsuits against the company have been filed in numerous states, both by disgruntled ex-employees, and customer who were attempted to be forced to pay for the service by the Leasing Companies, even though the company was not able to continue providing services. These lawsuits were not defended against by the bankrupt company or its past officers because they were too expensive and the abrupt cessation of operations and bank funding due to the backlog, left the firm with little money to defend lawsuits. The false allegations of a “Ponzi Scheme”, ”Bust Out”, or “Pyramid”, or that the technology didn’t work, and other false and incorrect claims requiring micro detailed defense to understand could not be set forth without millions of dollars in legal fees - and hence any default judgments or forced settlements should be considered as one who does not answer a Gorilla met face to face pounding on his chest in the jungle.