You Want Real Change in the Financial Industry?

If you're looking for a model for how real change happens, I suggest you keep an eye on James Koutoulas.

A man of many hats, Koutoulas was recently catapulted into the headlines as the co-founder and lead attorney of the Commodity Customer Coalition, a grassroots organization established to help former MF Global (OTC: MFGLQ) customers reclaim their money after the broker's epic bankruptcy. The CCC's reclamation push has included the money that was in the broker's accounts at the time of the filing -- which was initially slow to be distributed -- as well as the $1.2 billion of customer money that vanished at some point prior to the bankruptcy.

What's fascinating about Koutoulas' role in the CCC is that though he is a lawyer by schooling, license, and suffix, it's not his day-to-day profession. And yet, here he is, smack in the middle of the nation's eighth-largest bankruptcy, representing more than 8,000 claimants and battling financial giants like JPMorgan Chase (NYSE: JPM  ) , Wilmington Trust (a M&T Bank (NYSE: MTB  ) subsidiary), and Bank of America (NYSE: BAC  ) for more than $1 billion in funds.

A fresh face in a crazy case
Prior to his foray into the bankruptcy-court scene, you could find Koutoulas donning the CEO cap at Typhon Capital Management, a commodity trading advisor that he set up back in 2008. The culmination of Koutoulas' background in capital markets and computer programming, Typhon brings together talented traders and takes care of risk management, sales, and other back-office obligations that would otherwise distract them from trading. Typhon is then able to offer its investor customers tailored exposure to commodity and equity trading strategies.

Koutoulas described Typhon's model to me as similar to object-oriented computer programming -- that is, he takes efficient individual components and makes them movable and reusable. The structure fits Koutoulas' personality perfectly, as he's nothing if not pragmatic.

Which brings us back to MF Global.

With tens of millions of Typhon's assets sucked into the bizarre vortex of MF Global's multifaceted failure, both the company and James Koutoulas were automatic participants in the brouhaha over the supposedly segregated customer money. From day one there was a lot on the line for Koutoulas, but that hardly necessitated him taking on the role of William Wallace for thousands of others wronged by MF Global.

So why dive into the courtroom drama, take time away from his business, and sacrifice countless hours of sleep? When you ask him, the answer is exceedingly simple.

"No one else stepped up," he told me. "My personality is very problem-solving driven. I could sit by like others and go out of business or I can do something about this."

Fighting the good fight
With so many unanswered questions still swirling in the case, it's a bit premature to try to come up with too many lessons from the situation. Yet I couldn't help but ask Koutoulas what he's taking away from the mess at this point.

"Never stand down," he quickly replied. "If somebody is trying to take advantage of you, stand up for yourself."

It's an attitude that a few years ago would have seemed unusual -- maybe even naive -- when it comes to fighting the behemoths of the banking world. Perhaps critics could say that makes sense; after all, Koutoulas just turned 31, and a cynic might assume that he doesn't know any better than to take on the likes of JPMorgan and B of A.

But that's far from a Foolish attitude. That wasn't what drove The Fool's involvement in getting Regulation Fair Disclosure passed, it wasn't how we approached our in-depth look at MF Global, and it's not the mind-set that Rich Smith has had in rallying support for the Stop Trading on Congressional Knowledge Act. It also echoes the voices of thousands of Occupy Wall Street protesters standing up to Wall Street and the thousands of customers who pushed back when big banks tried jacking up their fees.

And it's an attitude that has yielded results for Koutoulas and the CCC. That "never stand down" approach has helped the coalition "educate" bankruptcy trustee James Giddens -- a hotshot in the legal bankruptcy world and the trustee for the Lehman Brothers case -- about the commodities industry and the plight of MF Global's commodity customers. These efforts appear to have helped speed up the return of a sizable chunk of customer money. The group's push has also put pressure on MF Global's primary exchange, CME Group (NYSE: CME  ) . CME's efforts to date have underwhelmed many involved in the mess, but it has offered up a $550 million guarantee to help hurry along the return of customer money.

JPMorgan and the road ahead
If you talk to Koutoulas, it becomes clear very quickly that the main Goliath to his David right now is JPMorgan.

"Their hands are on every aspect of this case," he told me. He went on to explain that JPMorgan was the custodian for MF Global's segregated customer funds and the company's biggest lender. He also has concerns that the bank got preferential treatment in its purchase of European sovereign debt and a stake in the London Metals Exchange from the MF Global estate. And now JPMorgan is swooping in as a vulture investor, offering to buy funds claims from customers at a significant discount. The phrase "conflict of interest" hardly seems sufficient to describe JPMorgan's involvement.

While Koutoulas' more candid views on JPMorgan aren't exactly fit to print, his actions are. Through the CCC and his widely followed Twitter account (@jameskoutoulas), he's been advocating a full boycott of JPMorgan -- banking, mortgage loans, credit cards, prime brokerage, you name it.

Never back down.

At the end of the day, it's all about the freedoms we have living in the U.S. "I can say whatever I want as long as I'm not slandering," Koutoulas reminded me. And that includes taking on big-money interests like JPMorgan. "Consumers still have a choice and they can vote with their feet."

It's certainly not an easy road that James Koutoulas is walking, but if we're going to see change -- whether it involves the MF Global bankruptcy and the U.S. futures market, members of Congress trading on non-public information, ineffective public-company boards, overpaid executives, or the myriad other issues that we deeply care about -- we can certainly learn a thing or two from his willingness to fight.

The Motley Fool owns shares of Bank of America and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer owns shares of Bank of America, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 27, 2011, at 7:09 PM, xetn wrote:

    The easiest way to fix this problem is to completely remove government from the investment markets and let investors rely on their own due diligence.

    No one will ever protect an individual's money better than the individual.

    Lets face facts, every regulator is asleep at the wheel (think Bernie Madoff; several investment analist notified various regulators of their suspections but all went unheard by the regulators).

  • Report this Comment On December 27, 2011, at 7:43 PM, Doris411 wrote:

    xetn, you always say the solution to anything is to get the regulators out of the picture. I don't disagree that they haven't done a good job recently, more shame on them.

    The problem isn't their existence but their inaction, perhaps even conflict of interest on the part of individuals within the regulatory organizations. So force them to shape up, don't throw them out.

    Individual investors need someone on their side, preferably someone with a big stick. No amount of due diligence will reveal to an individual investor information that the brokerage or company doesn't choose to disclose. And without a regulator, "choose" is precisely the correct word.

    Without the SEC rules, there would be no 10K, 10Q, 8K or any of the other regulatory filings; I shudder to think what would appear in a prospectus in the absence of regulations.

    Without regulators, companies wouldn't even have to publish audited financial statements. Their lenders might manage to require such, maybe even the big investors like the pension funds, but good luck to the average investor getting to see those statements.

    For all the signals about leverage and higher risk profiles (in published statements required under government regulation), could any individual investor have done enough due diligence to discover that MFG had broached the supposedly segregated customer funds?

    Or are you really advocating not a lack of regulation but a clean sweep of the existing regulatory structure, to replace it with people who actually do their jobs?

    N.B. I'm sure there are many honest and diligent people at the regulatory agencies. Too bad they aren't allowed to do what needs to be done.

  • Report this Comment On December 28, 2011, at 4:33 AM, TMFTomGardner wrote:

    Let's remove the FDA as well, and just let everyone do their own due diligence on any piece of fruit they eat. I'd also recommend doing away with street signs and letting drivers and pedestrians figure things out on the fly. Finally, let's privatize the police and fire departments, reserving the protections they offer only to those who can afford it.

    ;)

    Just because the rulesmakers fell down on the job does not mean that we should abandon rules. Instead, we should hold them publicly accountable and prosecute them just like the NBA did to its co-opted referee.

  • Report this Comment On December 28, 2011, at 8:51 AM, DJDynamicNC wrote:

    "No one will ever protect an individual's money better than the individual."

    There's a logical fallacy here, xetn. Can you spot it?

    Your suggestion is that we remove the regulators as nobody can protect an individual's money better than the individual. Here's the thing - the individuals in question DIDN'T protect their own money.

    Having regulators does not preclude one from taking precautions and performing due dilligence; it only provides additional tools with which to do so, and additional avenues of pursuit in the event of deals and businesses gone bad.

    If you really think the problem is that banks didn't have enough freedom to hide their books and screw their customers, then I'm afraid there's nothing I can say to impact the fantasy world in which you're living.

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