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The Poker Ethicist: Playing With Stolen Money

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.

On Not Protecting

Happy 40th Anniversary, War on Drugs!

Today marks the 40th anniversary of President Nixon’s declaration of “war on drugs”, a quagmire that has proven far more expensive and deadly than the Vietnam War that he inherited. Put simply, the war on drugs is an ongoing decision to address America’s drug problem as a fundamentally criminal, rather than for example a medical, one. This means that low-level distribution and even possession of certain drugs can land you in prison for surprisingly long periods of time, particularly if you happen to be poor and/or non-White.

Needless to say, mass incarceration has done little to stem the tide of drug use and distribution. Many argue that it has in fact made the problem worse in many ways:

1. Connecting Criminals: One plausible explanation for the globalization of the drug trade was the war on drugs’ simultaneous imprisonment of large numbers of African-American and Latino-American gang members. The connections they made in prison gave the African-American gangs access to suppliers in Latin America and the Latin American gangs access to a distribution network in the inner cities. In other words, more effective criminals were created.

2. Destroying Employment: It is extremely difficult for ex-convicts to find well-paying jobs. Drug dealers are often the only people willing to hire them, making it difficult to leave the trade even for those who would prefer to do so.

3. Destroying Families and Communities: A staggering percentage of men in certain neighborhoods are imprisoned on drug related charges. This means more single-parent households and more children growing up without adequate supervision and without positive male role models.

Michel Foucault, French philosopher and namesake for this blog, considers the problem of prisons in Discipline and Punish. He argues that even at the inception of the prison system there were people who knew that they would not prevent crime. Why, then, were they built anyway, and why do we continue to rely upon them? Why does the US spend $40 billion a year on a “war” it cannot win?

The most immediate answer is that politicians are cowards. They are, perhaps not without reason, afraid of being branded “soft on crime” if they suggest a different approach to dealing with drugs. There are some former politicians who have spoken out against the war on drugs, but few candidates or current leaders.

We should ask who benefits from this war, though. One possible answer is law enforcement agencies whose budgets are bolstered by anti-drug funds, but even many of them are calling for an end.

The whole thing made no sense to me until I realized what a big business prisons are. Many prisons in the US are operated by private, for-profit contractors who are paid by the head. More prisoners equal more money for them, and they spend millions on lobbying every year.

Interestingly, the towns that house prisons can also benefit. In addition to jobs in construction and prison operation, they are sometimes allowed to count prisoners towards their population for the purpose of allocating seats in legislative bodies and receiving state and federal funds.

Many people in the American poker community are outraged by recent Department of Justice actions that adversely affect our interests. I have seen many argue that prosecuting poker sites is a waste of government resources. That may be true, but there are many more government resources being spent to even greater harm in this disastrous War on Drugs. Let’s not get so caught up in our own problems that we lose all sense of perspective.

The harm inflicted upon our country by this failed policy is incalculable. I’m not pro-drug use, but I am convinced that this “war” is only making the problem worse. It has gone on for far too long, and it’s time for a new approach.

Dealing With a Bad Table Draw

Now that the WSOP is in full-swing, many players will be taking a shot or two at events well above their usual buy-in levels. This can be a great opportunity, because the $1000 and $1500 NLHE events attract hundreds of players weaker than what you’d see in an average $20 MTT on PokerStars.

What sets these tournaments apart is that, unlike the $20 donkament, they also attract some of the best tournament players in the world. This means that if you run bad at table drawing, you could end up with David Baker or Tony Dunst on your left. Understandably, this is a stressful thought for less experienced players considering these events. I have a couple of pieces of advice for these players:

1. Take Advantage of the Opportunity. Presumably part of the reason you are playing this tournament is for the experience of playing at the WSOP. Well, part of that experience is butting heads with the best of the world. Of course you’d rather watch them from afar than from their immediate right, but you can’t control that now. Observe them closely and try to pick up a few things that you can add to your own game. Even if they end up taking your chips, at least you’ll have learned something in the process.

2. Don’t Freak Out. Not even the best pros are gods. Their cards are dealt from the same deck that yours are, and when the action is on them, they have the same three choices: raise, call, or fold. Don’t assume that they are capable of feats of superhuman card skill. In fact, the correct strategy for them is generally to play a relatively straightforward game when stacks are shallowish and the table is full of amateurs. If you make the effort to study them and think through what they are doing, you may be surprised at how much you can figure out.

3. Don’t Be a Hero. Any type of poker play that could be preceded by the adjective “hero”, as in “hero call”, “hero fold”, etc., is generally not going to be a good idea against a player who is better than you. As I understand it, this terms generally refers to making a play with the opposite extreme of your range, so a hero fold means folding one of the best hands you could have in a given spot, where a hero call is calling with one of the worst hands you could have. By definition, these are exploitive plays that seek to take advantage of a perceived glaring imbalance in an opponent’s range, ie that it will be either extremely bluff-heavy or extremely value-heavy. Also by definition, you will have trouble identifying such holes in the game of a superior player, if he even has them in the first place. Better not to get into a leveling war against such a player in the first place.

4. Re-read Rule #1. The bottom line is that you should just relax, play your best, and make the most of the experience no matter what happens.

Backing and Bad Deals

Although I’ve occasionally sold action, I’ve never had a long-term backing deal, and I’ve never wanted one. I have a few horses but I’m generally very reluctant to stake anyone else. My thinking on this is as follows:

To the extent that the backer has an edge on a deal, it comes at the expense of the horse, ie the backer’s share of the profits is money that would otherwise belong to the horse were he playing for himself. Of course the horse derives other advantages from this, namely greatly reduced risk and bankroll requirements. These can certainly be mutually beneficial arrangements, but there is a narrow margin in which the backer is appropriately compensated for his risk and the horse is giving up not too much of his profit.

The catch is that, in most cases, there is also an invisible “trust tax” cutting into one or both sides of the deal. Anyone who reads Two Plus Two knows the kinds of things that happen: horses conceal winnings, play games they aren’t supposed to play, sell more than 100% of themselves, etc. Those are all examples of dishonesty but problems can arise without any bad intention as well: misunderstandings about the terms of the agreement, burnout, a sudden loss of bankroll, etc. No matter how well you know someone, but especially when dealing with relative strangers, you have to factor a substantial risk of something going wrong, intentionally or not.

Because neither party can fully trust the other, both must make some allowance in their edge for the possibility of problems arising. When dealing with narrow margins, this additional risk can theoretically turn a backing arrangement into a bad deal for both sides. This is why I’m very particular about my horses and only enter deals with people who have established reputations and “trust taxes” that are about as low as I can make them.

I’m going to include here some recent correspondence with a reader, slightly edited for clarity and anonymity. I believe his story illustrates my point quite well:

Hello Andrew,

I am 24 years old and I live in Henderson, NV. Following the shut down of service to US players on Pokerstars I decided to play a few live tournaments.  I instantly final tabled two Bellagio WPT $540′s back to back.  During one of those deep runs I was offered, by another player in the tournament, to join his team of players that are backed.  I had made out plans and set out a schedule of tournaments over the course of the summer only to find out that the backer of their team just went on $400k downswing and they are not adding any new players.

Now I am stuck in a bad spot, I am scrambling to find any sort of staking/coaching deal for the summer and I do not know anyone in the poker world.  I am a very intelligent player, and I work very hard at poker.  I have results to prove that I am a profitable player to stake and I will always play until all make up is recovered.  My back up plan to playing live here in vegas is to move out of the country and continue grinding for Supernova Elite.  I would be willing to grind online for bonuses to recover any makeup if needed.  It’s an absolute freeroll for anyone willing to back me.  I have no idea if you even do this sort of thing, but if not perhaps you know someone who does and could put us in contact.  If you or anyone you know might be interested at all please let me know and I will send you a resume of my accomplishments in poker and tell you more about myself as a player.  Any help you could offer, even if just some words of advice, would be greatly appreciated.

Sounds like a shitty situation, and I wish there were something more helpful or reassuring that I could tell you. What happened to you is a good example of why I’ve always avoided entering into relationships like these with relative strangers. There are just too many ways for someone to screw you, intentionally or unintentionally. If you have other options, I would actually encourage you not to rush into another backing arrangement with someone you don’t know well and trust.Leaving one of the gambling capitals of the world to play poker seems a bit silly as well. I’d say just play what you can afford on your own bankroll. Stay away from the high rakes on small stakes tournaments and grind up your roll at 1/2 and 2/5 NLHE games or whatever. Keep an eye out for tournaments that are a part of a series like the Venetian deep stack that provide a better structure or rake for smaller buy-ins.

Hey Andrew, thanks for getting back to me. I decided to just forget about finding a stake and grind the small Venetians.  And wouldn’t you know it I insta make a final table in event #1.  If I can finish top three it will be worth more than the stake that I was supposed to have anyways Looks like I’ll be alright for the summer.

Hey Andrew, I finished 9th at that final table, I lost AK v K2 for a 2nd place stack.  I followed that up with an 11th place finish in the next VDS that I played.  That one was rough I was chip leader with 15 left and bluffed away my chips.  A few days after that I got 2nd in a daily $235 tournament at the Rio for a nice little score of almost 14k, I got 3 outted heads up, 1st was 22k.  No luck in any of the WSOP events yet,  but I really like my chances in the shootout event tomorrow.

Tales From a Summer Camp: The New England Seashore

One summer during college I worked at a day camp for kids from Cambridge. Most people know the city for Harvard and MIT, but actually a good chunk of it is projects and other low-income housing. The camp consisted mostly of minority youth from low-income backgrounds, but there were a few white kids there because they didn’t have money for camp either or because their liberal academic parents wanted them to experience brown people. I was primarily responsible for a group of twelve 7- to 9-year-olds.

The camp scheduled field trips one day a week, every week for all of the kids. Mostly they were to educational city attractions like the science center, the zoo, etc. The most ambitious trip we took was to a beach that was more than an hour’s drive from the camp.

For logistical reasons, they scheduled and planned these trips far in advance, so we didn’t have the option of postponing or rescheduling for bad weather. The day that our group went to the beach, it was windy and overcast, not exactly swimming weather. Kids being kids, though, many of them wanted to get in the ocean, and of course that necessitated that most of the chaperons be in the water as well.

We chaperons also didn’t have the option of getting either completely wet or completely dry. Rather, we had to stand, anywhere from thigh- to waist-deep, in the ocean while the kids played inside the wide circle formed by the adults. This was both boring and uncomfortable, as we sat there half-wet and shivering and whipped by a chilly wind.

Terrence, one of my kids whom you may remember as the tough guy from an earlier TFASC, came running awkwardly out of the water and seemingly on the verge of tears. A female counselor standing next to me walked over and asked him what was wrong. He shook his head and wouldn’t answer.

“What’s wrong, Terrence? You can tell me.”

“Nothing,” he muttered. This was odd behavior for him and had my attention. She continued to press him, and finally he shouted, “Man, my balls is froze!”