Shelach-Repaid with Money Invested in a Ponzi Scheme

BS”D

Question

A few years ago, a friend of mine informed me that he is willing to invest money on my behalf. I gave him a sizable amount to invest. Recently, I needed some of my money, so I asked him to return one hundred thousand dollars. Shortly thereafter, he told me that he has a new investor, Reuvain, who wishes to invest two hundred thousand dollars and that I should receive the two hundred thousand dollars from him, keep one hundred thousand dollars for myself and give him the other hundred thousand dollars. I received the two hundred thousand dollars passed on the hundred thousand dollars to my friend and kept one hundred thousand. A week later, I was shocked to learn that my good friend is a crook. Instead of investing my money, he ran a Ponzi scheme and used money from new investors to pay old investors. My question is about the hundred thousand dollars which I received from Reuvain. May I keep the money? On the one hand, it seems I should be able to: I am owed the money and the investor gave it willingly for the crook and I accepted it on his behalf, and therefore, perhaps it is as if the crook received the money and gave it to me? On the other hand, maybe I have to give it back to Reuvain because it was only given to me based on false premises? Had Reuvain known the truth he would have never given the money to the crook. As such, perhaps the money never belonged to the crook and he merely used me to steal money from Reuvain?

Answer

In order to answer your question, we must consider similar situations that were discussed by the Gemoro and Rishonim. The core issue is whether one who receives investment money with an intent to conduct a Ponzi scheme is a thief of that money. If he is a thief, the money will need to be returned to its owner. An additional issue that will need to be clarified in your case is when it is that the one running the scheme becomes a thief (assuming he does).

The Mishna (end of second perek of Kiddushin) writes that if one sells an object from which a Jew is not allowed to derive any benefit (issurei hano’o, e.g. meat that was cooked with milk) and uses the proceeds to betroth a wife, the betrothal is nevertheless valid. The Yerushalmi derives from this that if one steals money and uses the money to betroth a wife, the kiddushin is valid.

The Rosh (Kiddushin 2, 31) notes the Bavli, however, rules that if one betroths a woman with stolen money the kiddushin is not valid. Since the Rosh agrees with the Yerushalmi that money which was received based on deceit is considered stolen money, he rules that if stolen money was used, the kiddushin is not valid. This is also the ruling of the Tur (end of Even Hoezer 28).

The Nachal Yitzchok (81, 32 end anaf 2) similarly rules that if one purposely deceives a customer and sells him damaged goods he is classified as a thief of the money he received by means of his deceit. This is also the view of the Machane Efraim (end of gezeilo 23). Thus, many poskim rule that money which was received by means of deceit is considered stolen right away.

In the case of a Ponzi scheme, the crook was not a seller. Rather, he received money purportedly for the sake of investing on behalf of various investors. He failed to carry out their wishes, instead pocketing the money for himself, and in so doing deceived his investors. The issue thus is whether one who receives money for a specific purpose and takes the money with no intention of carrying out the wishes of those who gave him the money is immediately considered a thief of the money.

We should note that if he would have been required to use the exact bills or coins that he received to invest there would be no question: since the money was specifically given for one purpose, any other use constitutes theft. The only reason there is an issue is because he was required only to invest money but not necessarily the specific money that he received from his investors. Therefore, his act of using the money for something other than an investment may not be problematic. On the other hand, the reason it would be theft is that the crook never intended to invest money on behalf of his investors.

Therefore, the issue is whether one who received money for a specific purpose and has no intention to carry out the wishes of those who gave him the money is immediately classified as a thief of the money. Furthermore, it is clear that the poskim who deem money received fraudulently – as payment for a defective item – to be stolen would certainly consider money received fraudulently – to be invested – to be stolen. The question is only whether those who disagree in the case of a sale of an object would, nonetheless, consider the investment agent to be a thief.

We find several poskim who discuss this issue and who do consider the receiving of such money to be theft. For example, the Chazon Ish (Bava Kama 10, 14) writes that one who fails to repay a loan that he received on condition that he eventually repay the loan is considered a thief of the original money. This is a very direct proof because it teaches us that failure to fulfill an original condition turns money received into stolen money.

Similarly, the Imrei Binah (Responsa 3, 6 and Gevi’as Chov 2, 2) writes that one who borrows and decides not to repay, even if originally he did intend to repay, is a considered a thief of the original money. His rationale is that when people lend money they do so only on condition that they will be repaid. Therefore, even if they didn’t explicitly specify this condition, nevertheless, since the condition is obvious, the condition exists and one who fails to comply with the original condition is a thief. Similarly in your case, the crook failed to comply with the original condition, i.e. to invest the money, and thus is considered a thief of the money he received.

Moreover, it would seem that no one would disagree in your situation that the money is classified as stolen. The Rama (183, 3) writes that if an agent who was given money to buy an object on behalf of someone announced in front of others that instead he will use the money to buy the object for himself, he is considered a thief. (There is a dispute what the result of the transaction is, i.e. if he or the one who sent him acquires the object that was bought with the stolen money.)

The Nesivos (183, 4) derives from this Ramo that an agent is not allowed to use the money for himself unless he first sets aside other money to replace the money he intends to take for himself. Since the crook in your case was an agent for his investors, he was not allowed to use the money for himself without first setting aide other money, and therefore, the money was stolen.

The Nesivos actually goes further than the Imrei Binah. From the Imrei Binah we can only derive that an agent is a thief in case he decided not to carry out the wishes of the one who gave him the money. However, we would not know that if he plans to eventually pay back, he is not considered a thief at that time he used the money. The Nesivos teaches us that an agent who uses the money for himself is considered a thief even if the agent did actually eventually carry out the desire of the one who gave him the money. The only way to avoid being a thief, according to the Nesivos, is by first setting aside other money on behalf of the one who gave the money.

In conclusion, there are a number of reasons why we view your taking the money from Reuvain as theft, albeit unknowingly, on behalf of the operator of the Ponzi scheme. Since it was theft you have to return the money to Reuvain. Even if the Ponzi operator himself received money or an object from Reuvain and had given it to you, you would be required to return what you received to Reuvain, as it says in Shulchan Aruch (356, 6) that “if one steals and pays a debt, the recipient creditor must return the object for free to its rightful owner.” So even your first alternative possibility would require you to give the money back to Reuvain. Therefore, you have to return the one hundred thousand dollars to Reuvain.