(South Florida Sun-Sentinel (KRT) Via Thomson Dialog NewsEdge) Sep. 4--Kevin Martin never saw it coming.

Martin, the owner of a small travel agency in Lauderhill, received a telemarketing call in October 2003 from a representative for NorVergence, a New Jersey company offering discounted landline, cell-phone and Internet service. After a lengthy application process, including discussions with NorVergence, Martin calculated that he could save about $400 a month. It might not seem like much, but for an eight-person office competing against national travel agencies and popular Internet sites, it's real money.

NorVergence pitched the cost-saving wonders of a little box called the Matrix. But the Matrix was nothing more than a simple router, Martin says. There were no savings, and sometimes the phones and Internet service didn't work at all.

"I was blindsided," Martin says. Though the travel agency has recovered, it lost some business because of the downed lines and is now being sued by a leasing company that bought the equipment rental contract from NorVergence. Martin Travel Services was among several thousand small businesses nationwide that had agreed to the contracts.

Last year a federal court in New Jersey found that NorVergence had falsely represented that consumers would receive discounted telecom services and it gave the Federal Trade Commission a $181.7 million default judgment. NorVergence has filed for bankruptcy and gone out of business.

Small entrepreneurs are particularly vulnerable to schemes like the NorVergence deal because they often don't have enough time or workers to adequately investigate business proposals. They might also lack the resources to file expensive lawsuits when they think they have been wronged.

Al Polizzi, a vice president at the Better Business Bureau's Southeast U.S. chapter, hears all sorts of stories of fraud against small businesses. The most prevalent trend today, he says, is identity theft.

An increasingly common ruse is ID spoofing, in which a caller can choose the phone number that will appear on the recipient's caller ID screen. The caller can pretend to be from a bank or credit-card company and ask for sensitive information such as an account number and the three-digit security code that appears on the back of a credit card.

"It's all about trying to get your ID, one way or another," Polizzi says.

Other schemes include bogus invoices sent by scammers posing as legitimate businesses; customers ordering goods with stolen credit cards; and "pre-approved" loans that require you to make an up-front payment.

Experts on small-business fraud say it's crucial for companies to research the history of the people they're doing business with. Many problems could be avoided if business owners demanded more information about their suppliers and major customers.

Hundreds of companies that conduct background searches can be found on the Internet, but many don't do thorough checks. Be wary of those that charge very little, like $10 per background check. Ask the company if it looks at court records, and if so, how it obtains them. Sometimes it is impossible to do a complete check without having someone on the ground visit a courthouse.

On their own, small businesses can check on prospective customers and suppliers through state agencies such as the Attorney General's Office (www.myfloridalegal.com or 850-414-3300) and the Department of Financial Services (www.fldfs.com or 850-413-3100). Complaints about some companies can also be found on the Better Business Bureau Web site (www.bbb.org) and at www.ripoffreport.com.

The FBI suggests obtaining a physical address of any potential business partner instead of just a post office box and phone number. It also recommends sending an e-mail to the company to see if it has an active account, and warns that no one should assume a company is legitimate because it has a sophisticated Web site.

Another problem for small businesses is internal fraud. The typical case, says Tom Cash, executive managing director at risk consultant Kroll in Miami, is the seemingly loyal bookkeeper who has been with a small family-run company from the early days.

"Fraud doesn't immediately strike," Cash says. "It has to be aged."

The bookkeeper, Cash says, sees the owners getting rich as the company grows and thinks he deserves a bigger piece of the profits. The owners think of him as a financial wizard, an indispensable employee who works 14 hours a day and never takes a vacation. Of course that's because the bookkeeper doesn't want anyone else looking at the company's finances.

Most internal theft and fraud at small businesses goes unreported, Cash says. "They have the tendency to forgive and forget," he says. "They are also too embarrassed."

In the NorVergence scheme, customers said the company employed the age-old tactic of putting a lot of technical, confusing terminology in the fine print of a contract. That doesn't necessarily get the offending company off the hook if it broke the law in other ways. NorVergence sold rental contracts for its Matrix box to leasing companies around the country. Those contracts allowed the companies to pursue payment from customers even if NorVergence failed to provide phone or Internet service. As a result, travel agent Martin and former NorVergence customers nationwide are being sued by the leasing companies.

Martin researched NorVergence on the Internet and found the company listed on the Better Business Bureau's Web site without any negative reports. Complaints about NorVergence started appearing later on the BBB site. The confusing details in the NorVergence contract got past Martin, but he points out that some lawyers, who are trained to read the fine print, are among those who claim they were defrauded.

In hindsight, Martin wishes he had listened more carefully to "his inner voice," he says. "There is always something inside you that says it's too good to be true."

Ian Katz can be reached at ikatz@sun-sentinel.com or 954-356-4664.

Copyright (c) 2006, South Florida Sun-Sentinel
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