Las Vegas Councilman Michael Mack's business setbacks, which recently forced him to file for bankruptcy protection and helped generate multiple ethics complaints, have had little effect on his personal income.

According to records on file at U.S. Bankruptcy Court, Mack's salary from his Flamingo Road pawnshop grew considerably even as the company's finances foundered. The records show that Mack's personal and business debts had grown to more than $4.3 million by late December, or $1 million more than he reported owing last summer and $2 million more than he owed at the end of 1999.

But since he filed for bankruptcy on Dec. 7, Mack is continuing to pay himself an annual salary of more than $147,000, a figure that does not include the $38,000 per year he receives for his part-time duties on the City Council.

The councilman's current pay represents a cut from the $206,000 annual salary he was receiving between Jan. 1 and Nov. 1 of 2001, a time when his business debts were mounting and when the councilman admitted he paid scant attention to the daily affairs of his pawnshop. Yet it's a considerable raise from the $91,385 he took from the business in 1999, when the company's books were still balanced, his debt load was significantly lower and he was not yet a councilman.

Mack's salary in 2000 was $181,206, including his council pay.

Lynn LoPucki, a law professor at the UCLA Law School and an expert on bankruptcy, said Mack's salary could become an issue for the courts as his debts are resolved.

"It's highly unusual and it's considered improper for a person in this position to increase their salary when the business gets into financial difficulty," LoPucki said. "(Most bankruptcy judges) look at the salary for the purposes of reasonableness, and in doing so, they usually require that the owner of the business make some sacrifices, just as the owner of the business is asking the creditors to do.

"In other words, it's bad form to be taking a big salary, and a lot of courts won't let you do it."

Mack did not return several messages left for him at his pawnshop and on his city cellular phone on Thursday and Friday. An assistant in his City Council office said Friday that the councilman left on vacation Friday morning and won't be back until Tuesday.

Richard Carmody, an Alabama attorney who co-chairs a committee on ethics for the American Bankruptcy Institute, said the question of Mack's salary is not an issue of ethics.

"That's a business issue," Carmody said, adding that in most bankruptcy reorganizations a committee of creditors is appointed to oversee a business that's being reorganized. It's not clear from the filings if such a committee has been appointed in Mack's case.

Mack filed for Chapter 11 bankruptcy, which allows him to operate the business while its debts are being reorganized. The most common form of bankruptcy is Chapter 7, in which the court appoints a trustee to oversee a business while its assets are being liquidated.

The councilman's pay increases came at a time when gross income for his company, Nevada Asset Lenders, was falling. Records show that the company had gross revenues of $3,359,258 in 1999. The following year, when his salary nearly doubled, the company's income fell to $2,442,925. In 2001, the company took in even less money: $1,777,919 between Jan. 1 and Dec. 7, according to the records.

Although he operates a business where even the smallest loans require collateral, Mack was able to borrow large sums of money from friends and relatives with no guarantee other than his good name. The vast majority of Mack's debts are unsecured, meaning his creditors have no guarantee of being paid back. The unsecured creditors include several of Mack's relatives, a Texas pawnshop and local businessman Denny Mason, to whom Mack owes $1.3 million.

According to the bankruptcy filing, Mack has personal assets of about $723,000, an amount that includes his pawnshop license, which is valued at $500,000. The rest of Mack's personal assets includes a condominium in Ward 6 and assorted personal items such as guns, jewelry, art and other collectibles.

The councilman's business assets are slightly higher, according to a separate amended filing which lists personal property valued at $1,112,731 and business debts of $3,943,443. Because Mack personally guaranteed most of his business loans, his attorneys have asked that the business and personal bankruptcy reorganizations be joined to form a single case. A telephone call to attorney Gregory Garman, who represents Mack in the bankruptcy case, was not returned last week.

LoPucki said Mack's level of debt is extraordinary, given the relative paucity of personal assets.

"How you get $4 million in debt out of $700,000 in assets, that's quite a trick," he said.

There are no statistics on how many pawnshops file for bankruptcy each year. Bob Benedict, executive director of the National Pawnbrokers Association in Dallas, said his trade association is in the process of researching the issue.

Benedict said the success of any pawnshop depends largely on its ability to place an accurate value on items being pawned.

"When someone comes through the front door, the pawnbroker has to do two things fairly quickly: He has to determine whether the item is real, and he has to know if the person bringing it in is for real," Benedict said. "They have to be very good judges of character. I would be willing to bet you if a pawnshop failed, (the owner) wasn't very good at one of those two items."

Mack's finances are closely linked to his ethics troubles, which began when he voted June 6 to deny a car dealership in his ward without disclosing that he owed $60,000 to a competing car dealer who opposed the project.

At the time, Mack said he thought the money he borrowed from Joe Scala in September 2000 had long since been paid back. When he discovered that he still owed the money, which was listed in a February 2001 financial disclosure form, Mack asked that the car dealership item be placed back on the City Council's agenda for a second time so that he could abstain. The proposed Nissan dealership being sought by John Staluppi Jr. was rejected again in early July.

Mack faces a Feb. 14 hearing before the city's Ethics Review Board on a complaint related to the June 6 vote, but recently cleared a key legal hurdle when Staluppi agreed to drop a civil complaint seeking monetary damages in connection with that vote.

Las Vegas Review-Journal

-- Anonymous, January 27, 2002