Bum Leases Hit Small Businesses

(CBS)  To Vivian Cox Fraser of the Urban League in Newark, the deal was irresistible.

As CBS News Correspondent Lee Cowan reports, the sales pitch was extremely persuasive.

The pitch, from the company, Norvergence, offered to bundle all her phone, cell phone and Internet service for roughly 25 percent off, a savings of almost $15,000.

"When you run a non-profit agency everything counts," said Cox Fraser.

Norvergence sold discounts to some 11,000 customers, including John Turner, who runs a software company in Virginia. The catch, he says, was in a box.

"A magic box that would do all these things for you," says Turner.

Norvergence told its customers that all those discount phone services depended on a high-tech piece of gear Norvergence called the Matrix. And so every single customer had to sign an ironclad agreement to lease the Matrix for five years.

What customers did not know was that Norvergence had sold the leases to finance companies including GE Capital and BB&T. That gave Norvergence its money up front. But guess what?

In July, Norvergence went bankrupt. And all those promised phone services stopped.

In a mind-boggling turn of events, the finance companies still want to be paid for the box, and are suing or threatening to sue the customers. BB&T, claiming it has lost money, wants the Urban League to pay $9,000.

How is it that Fraser doesn't have service, but still owes money?

"That's the question I want the answer to," she says.

In this growing national scandal, the Attorneys General from five states want the threats stopped.

"It's hard for me to believe these leasing companies did not know that there was something wrong with these leases," says New Jersey Attorney General Peter Harvey.

Officials at Norvergence declined to speak to us but through their attorney blamed bad luck, writing, "The exponential growth of the company and (changes in) financing caused a downward spiral (which) could not be reversed."

But the victims say it was a scam from the start and have asked the FTC to step in. Most of these victims are strong small businesses, the backbone of the economy, and agencies like the Urban League where a dollar saved is another child served.