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The Poker Ethicist: Playing With Stolen Money

by Andrew Brokos |  Published: Jun 27, '11

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As “The Poker Philosopher”, and in honor of one of my favorite non-poker blogs, I occasionally consider the ethical dimensions of a high-profile controversy in the poker community. Today, I consider a lawsuit brought on behalf of Ponzi scheme victims against players who allegedly won the fraudulently obtained money from the thief in a high-stakes poker game. Older editions of The Poker Ethicist are available in the archives.

CNN reports that,

“Celebrities who won big money in secret high-stakes poker games at Beverly Hills luxury hotels were paid with funds stolen from investors who had been lured into an illegal Ponzi scheme, a series of federal lawsuits contends.

Actors Tobey Maguire, Nick Cassavetes and Gabe Kaplan, along with professional poker player Dan Bilzerian, two nightclub owners and a Los Angeles lawyer are among at least 11 people being sued by a bankruptcy trustee.”

The lawsuit alleges that Bradley Ruderman fraudulently solicited millions of dollars in investments from at least 22 individuals and lost some of that money in an underground poker game played with the afore-mentioned celebrities as well as Matt Damon, Ben Affleck, and others. It seeks to recoup funds lost to these players so that they can be returned to Ruderman’s victims. Are the investor-victims ethically entitled to the return of these funds?

They are not. If the players who won money from Ruderman had no reason to believe that he was gambling with other people’s money, then they are entitled to their winnings. The simple proof of this is that had Ruderman won money in the game, losing players would not be entitled to collect their losses as part of the fund’s bankruptcy proceedings even if it became apparent that Ruderman had been playing with money that was not his own. A rule like this would enable the investors to freeroll Ruderman’s opponents in the game, entitling them pay nothing if Ruderman loses but to keep anything he wins. The fact that Ruderman probably would have never have returned any winnings to his investors is immaterial. The crime is his, and his victims are entitled to recompense from him, not from others who later received that money through no fault of their own.

We can draw an important distinction between this case and the attempts to repay investors who lost money to Bernie Madoff from the funds of those who unwittingly profited from the scheme. In that case, there is a reciprocal relationship between the “winners” and the “losers” in that both were investors with Madoff. Had the timing been different, the “winners” could easily have been “losers” themselves and entitled to recompense from beneficiaries of the scheme. There is no freeroll in this instance, no group that can win but never lose.

The lawsuit alleges that because the game was illegal under California law, “the player[s] had no legally enforceable contractual right to receive payment.” This may create a legal entitlement on the part of the investors, but it does not create an ethical one.

The only way in which the recipients of the funds could be ethically implicated is if they knew the money was fraudulently obtained. In that case, permitting them to keep the money would enable thieves to launder stolen money through poker games with friends, claiming that it is unrecoverable because lost fair and square. If the winners are not in on the impropriety, however, then there is no danger of this and thus no additional harm is done to Ruderman’s investors as a result of his playing poker with their stolen money. If he wins, they win (at least until he finds another way to squander their money), and if he loses, they lose. This time, they lost.

The real winner here is Gabe Kaplan, who is probably thrilled to see his name appearing in Hollywood gossip magazines alongside those of A-listers like Toby Maguire and Matt Damon.

Andrew Brokos is a professional poker player, writer, and teacher. He is also an avid hiker and traveler and a passionate advocate for urban public education. You can find dozens of his poker strategy articles at www.thinkingpoker.net/articles and more information about group seminars and one-on-one coaching at www.thinkingpoker.net/coaching.

 
Any views or opinions expressed in this blog are solely those of the author and do not necessarily represent those of the ownership or management of CardPlayer.com.
 

Comments

notCIA
over 10 years ago

If the people who played were aware they were engaging in an illegal activity, do they have any ethical claim to the results of that activity? I think not.

Why the dig on Gabe? He was playing poker for decades before it became cool for the current crop of Hollywood celebs.

 
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lookatme23
over 10 years ago

I don't believe it is a dig on Gabe at all, if fact just the opposite, it is a compliment. I would be pretty psyched if my name was put on that list and I got to sit and play in their game.

 
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Foucault82
over 10 years ago

I didn't mean that to come off nearly as mean-spirited as it did. I just thought it was funny that the articles tend to mention Gabe as one of the actors playing in the game, when in fact he was probably there because of his involvement in the poker industry, not because he runs in the same circles as Damon et al.

 
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notCIA
over 10 years ago

How about this situation:
You have a lovey 8 year old niece with huge medical problems and her parents will be facing medical bills of a million dollars plus.
You represent yourself as a money manager and convince 10 people to give you $100,000 each to invest. Instead you give the money to your niece for her medical bills.
Your investors find out immediately and sue you for fraud.
Your niece has done nothing wrong and was unaware from where you obtained the money.
Are you saying that once your niece and her parents become aware of the source of the money, they are under no ethical obligation to return the money to the investors? Ethically, they could keep the money for the upcoming medical bills?

 
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Gween
over 10 years ago

That is not an applicable situation, notCIA. In your example the money was a gift. A bank robber could not simply hand money to someone outside the bank, and expect that this person would be entitled to keep the money.

On the other hand, if your boss robbed a bank (perhaps to meet his payroll), and you worked your typical work week, and it was determined that all or part of the stolen money was used to pay you...They would not easily be able to take that money from you, especially out of your bank account.

Tobey, and other may be able to claim that the winnings from Ruderman, was subsequently lost to other players at a later point. This is even assuming it can be proved (in court) that they actually won money from Ruderman, and that money directly won from Ruderman is money they cashed out.

Consider a typical poke night where you start with X dollars, you get up some, you go down some, and after the session you break even. You won money from some people and lost it to other people. How much of Rudermans money did any of these peopel actually cash out. Even with total winning and losing from each player, it would be next to impossible to determine who actually ended up with that money.

I suspect that the lawsuit is merely to entice these folks to settle for some amount to make it go away. We will see I suppose.

 
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Foucault82
over 10 years ago

What's screwing the winners in the poker game is that Ruderman seems to have paid up after the game via bank transfers. So there's clear evidence of him having sent certain amounts of money to specific players. Of course it's possible that one of these players was functioning as a "bank" for the game or something, but good luck making that argument in court.

 
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bparmalee
over 10 years ago

I dont think that any reasonable person could conclude that somehow people in these games need to pay back the money they won. Its not your responsibility as a player to know where another players bankroll comes from. A lot of people play with money they cant afford to lose or money they charge off of credit cards... this isnt a rare situation... just happens to be a much larger dollar amount then usual. Players have done all sorts of underhanded and illegal things in order to stay in action... nothing new.

 
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Foucault82
over 10 years ago

I'm inclined to agree but I've spoken to several lawyers about this, including one who specializes in bankruptcy, and they tell me that the money is most likely recoverable. Apparently there have even been similar instances of money recovered after it was lost to legitimate casinos.

 
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6point1HEMI
over 10 years ago

Isn't the issue here that he lost the chips on credit, rather than actually losing the cash at the table? If that was the case, the payments would've been payments of debts, which (I think) could at least potentially be deemed preferential payments by a bankruptcy tribunal, and therefore recovered and distributed amongst all creditors (including the poker players).

 
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Foucault82
over 10 years ago

The key question to ask is what would have happened had Ruderman won in the game and subsequently gone bankrupt and had his fraud revealed. I'm pretty confident those who lost money to him in the poker game would have been entitled to nothing, so treating it as stolen money when he wins but not when he loses doesn't seem right to me.

 
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6point1HEMI
over 10 years ago

I agree that nothing would have happened if he'd won (save that there would be more money in the bankruptcy pot). And I understand your sympathy for the other players, but I guess it is just one of the risks of extending credit to people (rather than a poker issue).

Bottom line is, you lend someone money, and they steal from someone else to pay you back, why should you be able to keep those stolen funds (assuming the payments can be traced)?

 
 

notCIA
over 10 years ago

The difference I see is everyone in this scenario knows what they are doing: playing poker for big money and not in a licensed and regulated casino. They are knowingly taking a risk.
I don't think any of the players can say they were a victim of fraud if they lost money to Ruderman. Conversely, the investors who gave money to Ruderman were victims of fraud. They did not expect their money to finance Ruderman's poker playing. They did not knowingly and willingly take on this risk.
I am not interested in the legality. The court will decide what the court decides. I am speaking of the ethics in keeping the stolen money which I thought was the point of the blog.

 
 

mikeyb111
over 10 years ago

So is every dollar that Ruderman spent anywhere recoverable simply because he was using ill-gotten gains ? That makes no sense. It shouldn't matter that he blew money in a poker game or if he spent it on $500 lap dances. The investors got cheated and unfortunately can only go after the assets that Ruderman has left.

 
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Gween
over 10 years ago

If you go into a B&M casino and trade cash for house chips, you haven't taken out a loan or been given credit. If anything, the casino is essentially warranting that the value of your bets (by placing bets into the pot) is legitimate. One of the purposes of casino chips is to reduce fraud and counterfeiting. Hand the house $100 bill and they verify it is valid before giving you chips. This allows the players to feel comfortable that they aren't being cheated.

If this game had occurred in a B&M poker room, would they be suing the players to recover Ruderman's losses? I seriously doubt that.

In effect, they are basing their attempts at recovery on the emotional aspects (fear) of some form of prosecution for the location and method of the game (or rather the implication that the game itself was illegitimate), in the hopes that that the potential defendants will settle the case to avoid the potential prosecution.

It is not legal for the plaintiff to threaten prosecution in an effort to force a defandant to settle a civil case, however, you could bring a seemingly unwinnable suit, fully expecting that a defendant will offer to settle first to either avoid potential prosecution, or to avoid the expense of defending the suit in question.

Just my theory...

 
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Foucault82
over 10 years ago

Interestingly there is a thread on 2p2 right now about how casinos won't necessarily enforce losses at the poker table unless the money is physically in the pot: http://forumserver.twoplustwo.com/29/news-views-gossip/warning-live-poker-players-wynn-macau-all-fail-1058804/.

The incident in question occurred in Macau but the upshot for US players seems to be that if a player says "all in" but doesn't put his chips in the pot before you win the pot, the casino can't force him to pay you.

 
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notCIA
over 10 years ago

Andrew is addressing ethics. He is speaking to morality, not legality. Sometimes they are the same, but often they are not.
In the actual case, one guy is gambling with money that is not his to gamble with. He was was supposed to be investing the money for other people, so he was committing fraud. The question is, can the players who won money from him, ethically keep it even though they had no idea the guy was a crook?
I don't think so and I think Andrew's thought process is faulty.
The investors are not on a freeroll. The investors expected their money to be invested. Usually that means things like stocks, bonds, commodities and real estate. They were not taking a piece of the action in a poker game intentionally. The investors are victims, not opportunists.
Complicating the matter, it appears everyone was participating in an illegal activity by playing in the poker game.
Imagine a group of fun loving guys decides to rob a bank. The bank they randomly pick is a front for Nazi money laundering and all the money on deposit in the bank was stolen from Jews.
So we have a group of guys engaging in an illegal activity acquiring money from someone who took the money illegally in the first place. Would we say the Jews are out of luck because the Nazis don't have the money anymore and the bank robbers are not ethically bound to return the money to the Jews.
I think that would be a silly result.
However, I do not think it is necessary that additional (beyond the initial taking) illegal activity took place. Hence my example of the sick niece. I think it is clear there is an ethical obligation for the niece to return the money to the rightful owners who were the victims of fraud.
The niece will be no worse off than she was before she received the money and the rightful owners of the money will be restored. Hopefully, Andrew in this fictional case will be punished.
Note: in my examples the initial taking is both illegal and unethical as it was in the actual case.

 
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Foucault82
over 10 years ago

You're right that the fact that this is an illegal game complicates the matter somewhat. You seem to think that even in a game that is totally on the up-and-up, the money would need to be returned, and that seems crazy to me.

In a Ponzi scheme, not all investors lose money. It's very possible that had Ruderman won, he would have used the winnings to pay profits to some of his investors. Had he later gone bankrupt, the trustee might have gone after the profitable investors to recover losses for investors who lost money, but there would be no one to do that on behalf of the poker players. If the duped investors are allowed to recover this money, then they are freerolling.

 
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notCIA
over 10 years ago

I don't think the investors are freerolling. I would agree with you if the investors had given Ruderman the money in exchange for a piece of the action from his poker playing. But they didn't. Ruderman misrepresented what he would do with the money. That's fraud, that's stealing. The winning poker players won stolen money if they won it from Ruderman.
Again, I am not interested in what can be proven in court. I am speaking purely on the ethics of keeping stolen money.
Ask yourself how the winning players stand if they return the money to the court. They are exactly the same as they were before they engaged in the poker game. Then ask yourself how the investors stand if the money is not returned to them. They stand as cheated victims. I think this is an important test and, not that it matters for my argument, one that courts often use.
The position you seem to be taking is that the players risked their money to win the money fair and square. They didn't cheat anybody, Ruderman did. In fact, Ruderman cheated them too by not putting his own money at risk in the poker game. But that's a risk the players took. One of many risks and not one they probably foresaw, but still an inherent risk.
I'm saying they are not ethically entitled to stolen money because of this significant difference.

 
 

notCIA
over 10 years ago

BTW, an interesting aspect of the Madoff case is that many of his investors were VERY sophisticated investors. As very sophisticated investors, it can be argued they had to know it was impossible for him to achieve such high returns over a long time period under variable market conditions. Therefore they had to know he was doing something "funny." They just did not want to know what he was doing and turned a blind eye. It was often those sophisticated investors who pulled some money out, just not all of it, but usually enough to put them ahead of the game no matter what happened. Well, no matter what happened except the court going after those gains.

 
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L2K4FC
over 10 years ago

NotCia says: "Note: in my examples the initial taking is both illegal and unethical as it was in the actual case."

Illegal as say smoking in a non smoking area? Or illegal as in robbing a bank? Or illegal as murder, or rape? There are degrees of illegal. You seem to want to equate playing in an illegal [eyeroll] home game of poker with robbing banks and defrauding hundreds of thousands of dollars from the community. Because playing in that private game is the only thing they did illegally that the articles have shown. Don't you think that your analysis is a little off in this respect?

Yes my friend the investors are victims, however the victimizer was one man, not eight others at the table. Following your logic, the poker players are now victims too!!! So, which came first the chicken or the egg? This is why ethics is not the end all be all for human behavior. It's great to debate on online blogs but in the real world nobody is going to listen to this kind of BS and give it any daylight.

 
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shakhtar
over 10 years ago

When I read some of these comments (especially those offered by notCIA), I understand why eugenics is making a comeback.

 
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