‘It’s not pretty and it’s not nice’: Once a rising star, former Salem business owner now facing financial woes

April 24--SALEM -- When a young entrepreneur approached city officials in 1999 with a proposal to convert an old warehouse along the North River Canal into a green workspace to house her growing company, the city was eager to help.

Wendi Goldsmith's plan would help revitalize a blighted area, and her business, The Bioengineering Group, would create jobs for area residents and, eventually, tax revenue for the city.

As The Bioengineering Group grew, winning major contracts that included developing stormwater management systems in New Orleans after Hurricane Katrina, Salem was behind her.

She also won accolades both locally and nationally for her work on environmental resilience and for her role as a woman leader of a multi-million dollar company.

But now, Goldsmith says she is broke, contemplating bankruptcy.

Last month, the city of Salem went to court to obtain a nearly $200,000 attachment on her Manchester-by-the-Sea home. And the once-blighted warehouse she worked to turn into a green building has been lost to foreclosure by other lenders.

So what happened?

"It's not pretty and it's not nice, and I'm actually kind of horrified that it's playing out like this," Goldsmith said.

In 2013, she was about to land another federal contract potentially worth $18 million. Goldsmith blames delays in that contract and what she alleges was bad faith on the part of Salem Five, to which she had turned for working capital, for the current situation. She says she was forced to sell her company for a fraction of its value as a result. In 2016, she filed suit against Salem Five.

Salem Five has denied the accusations, and in a counterclaim alleges that it was Goldsmith who misrepresented the expected start date of the contract and its value.

James Nelson, a vice president and spokesman for the bank, declined to comment on the matter.

The suit is still pending in Lawrence Superior Court, but there has been no activity on it since early last year. Goldsmith says that's in part due to the fact that she is representing herself. She says she cannot afford a lawyer.

Promising start

Goldsmith, a 1987 graduate of Yale University, had started her business in her Salem home in 1992.

Seven years later, as Goldsmith, then in her early 30s, was moving her growing business to the warehouse at 18 Commercial St., the Salem City Council voted to grant The Bioengineering Group a five-year tax increment financing plan, allowing her to defer paying taxes to the city until 2005.

"I think this is going to be a big boon for Salem," said one councilor, Tom Furey, after the vote was taken.

And for a long time, it appeared to be. The building and grounds were renovated and jobs were created.

Months later, Goldsmith showed off to a Salem News reporter the environmentally friendly features she had incorporated into the building, such as office partitions made of woven palm leaves, skylights to reduce the need for artificial lighting and coconut-fiber carpeting.

In 2002, Goldsmith told The Salem News, "We're growing like gangbusters." The firm had grown to 36 employees and was planing to hire more.

She had won contracts for large projects like stormwater management for the expansion of Route 3. And in the late 2000s, she won major contracts to work on developing new protection systems for the Gulf Coast after Hurricane Katrina.

Hope, then catastrophe

In 2013, Goldsmith says in court papers, she learned informally that her business had been among a group selected for a massive contract as part of the federal Global Engineering, Integration and Technical Assistance program, worth potentially $18 million in revenue to her company.

But she needed working capital while waiting for the contract to start generating projects and income.

Salem Five, which had an ongoing relationship with the business, had agreed to extend a new line of credit, according to court filings. The Life Initiative, a fund created by the insurance industry in part to provide loans to businesses in economically disadvantaged areas, also stepped in to loan the firm $275,000.

And the city, which had loaned Goldsmith funds through Community Development Block Grants in 2004 and 2009, again stepped in in 2013 with a loan for an additional $75,925.

But, Goldsmith says in her suit, Salem Five delayed releasing funds and then froze them. Then, she alleges, the bank applied funds from the new loan against earlier loans, something she says violated Small Business Administration rules.

At one point while waiting for funds from Salem Five, she says in her suit, she was forced to take cash advances on a credit card to make payroll, a debt that remains outstanding.

When the loan was finalized, Goldsmith says, the terms had changed, but she was under pressure to accept them to keep her business going. It was soon after that, she says, that she was forced to sell.

Goldsmith sold the business to the Pennsylvania-based Chester Engineers. (That company, in turn, was sold last year to a Canadian company). The terms of the sale were not disclosed. In a court filing, Goldsmith contends her business was sold for a fraction of its worth.

"I did not receive a dollar when the assets were sold," she said.

She stressed that she worked to keep jobs and the company's presence in Salem. Hatch Chester, the Canadian operation, still lists a location in Salem, at Shetland Park.

Loans not repaid

The last payment the city received on its loans was in February 2014, a few months before Goldsmith sold her company.

Goldsmith retained ownership, through a trust, of the property at 18 Commercial St. It has since been lost to foreclosure by her other lenders.

Goldsmith had signed personal guarantees for her loans, essentially using her own home as collateral, according to the city's request for the attachment, filed in Salem Superior Court. That, the city's lawyers argue, puts her on the hook to repay them.

"Multiple attempts were made by planning staff, specifically the economic development planner, to work out a plan of repayment," said Salem City Solicitor Beth Rennard. "There was a foreclosure on the business property, and Ms. Goldsmith reported to staff that she was unable to pay. The story of how and why is unknown to me. Seeing no other option, we retained outside counsel to bring an action to recover the loan amount."

Goldsmith said she understands the city's position.

"They told me that it was a formality they had to do to preserve their legal rights," said Goldsmith, who did not attend last month's hearing.

A lawyer for the city, Christina Mihos, told Salem Superior Court Judge Janice Howe that she expected Goldsmith to be there, leading the judge to delay the hearing for an hour. But Goldsmith disputes that, saying she asked Mihos if she could move the date because she was out of town on a work project.

Goldsmith has been running a nonprofit, the Center for Urban Watershed Resilience, and has earned a doctorate, since selling the business.

The attachment granted by Howe means that if Goldsmith sells the home, which according to property records she purchased in 2007 for $815,000, the city will be entitled to $199,075 of the proceeds.

In response to a question about whether she had tried to contact banking regulators about her allegations against the bank, she said she did, but to no avail.

"The only way this will be resolved is through this lawsuit continuing or through the bankruptcy process," Goldsmith said. "I'm trying very hard not to go there, but I think my alternatives are running out."

Courts reporter Julie Manganis can be reached at 978-338-2521, by email at [email protected] or on Twitter at @SNJulieManganis.

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