James Koutoulas Podcast Transcript
James Koutoulas joins host Brian Thomas on The Digital Executive Podcast.
Welcome to Coruzant Technologies, Home of The Digital Executive Podcast.
Brian Thomas: Welcome to the Digital Executive. Today’s guest is James Koutoulas. James Koutoulas, Esq. founded Typhon in 2008 in order to provide investors with the ability to access emerging managers who are surrounded by institutional infrastructure.
James Koutoulas is the President and co-founder of the Commodity Customer Coalition, or the CCC. Mr. Catullus represented over 10,000 customers pro bono, helped force the return of 6. 7 billion in customer assets, and advised Congress on reforms. He served on the Board of Directors of the National Futures Association for three years.
Well, good afternoon, James. Welcome to the show!
James Koutoulas: Thank you. Thanks for having me.
Brian Thomas: Absolutely great day to be in Miami beach. That’s where you’re hailing out of. I appreciate that. That’s just awesome. I’m over here freezing a little bit today in Kansas City. We went from 70 degrees down to 18 the other day and we’re just trying to get back to the spring if we can.
So anyway, James, I appreciate you making the time jumping right into your 1st question. You founded Typhoon Capital Management in 2008 with a unique vision. Can you share what inspired you to start Typhoon? And let me get that right, is it Typhon?
James Koutoulas: It is Typhon, and I got a little too cute naming the firm. It comes from my classics background, but Typhon is the father of all monsters in Greek mythology. And since our model was taking the multi strategy model of, like, a citadel or millennium. And making it modular, so that investors could come in and get the exact portfolio of specialized trading managers without going into, like, a 1 size fits all structure.
Having that kind of Greek hierarchy and family tree is very useful for naming all of our different portfolio management groups.
Brian Thomas: Thank you for sharing that and again, apologize for the mispronunciation…
James Koutoulas: …maybe about 14 times a day. So…
Brian Thomas: Yeah, it throws me off there. It looks like typhoon, but Typhon. Okay. How’s your approach with Typhon? How does it differentiate from other investment firms and providing access to emerging managers?
James Koutoulas: Well, so we really specialize in stress events, right? Like I say, we were born in the storm in 2008. Our 1st major trade. Was September 2008 where we bet on a financial crisis happening synthetically.
By buying options that the Fed would have to cut interest rates when believe it or not a rate height was priced in about 1 month before Lehman’s collapse. So, that trade, we risk 2 percent of our, our seed assets and made 35 percent when, you know, it was down 50 and almost on a business. Right? So. We’ve always prided ourselves on the ability to make money when no 1 else does.
And we’ve done very well. And, you know, aid in in the arc goes blow up and apocalypse in 2018. this past Q4 here with the, treasury reversal, so so we really love volatility. And we view it as our jobs is to protect investors and in those volatility events. And what we’ve been doing lately with the firm is broadening out.
We brought on a long short team called s squared. That were formerly white box and these guys have actually made money in long, short value, which is where returns usually go to die. But without the magnificent 7, they’ve still put up almost double the risk adjusted returns. Of the S and P, so, you know, they’re really phenomenal in the value space.
We have an award-winning Leonis cryptocurrency fund that we’ve analyzed at about 50% for seven years at one third of the maximum loss of Bitcoin over, over that period. So really good at-risk management and, and benefiting from volatility.
Brian Thomas: Thank you. And I appreciate you kind of giving that background there because we’re going to talk a little bit about some of the things you’ve done since 2008, obviously.
Your work with the Commodity Customer Coalition, the CCC, especially during the MF global bankruptcy, was monumental. Could you walk us through how the CCC was formed and your role in recovering over 6. 7 billion in customer assets?
James Koutoulas: Yeah, it was pretty wild. So, Typhon again, we’re very modular. So, we let customers choose their clearing firms.
2 of our biggest customers had chosen global, which at the time was the biggest non-bank commodity broker by a factor of 2 to 1. It was led by former Goldman Sachs CEO, John Corzine. Corzine had joined that firm after losing reelection and New Jersey governor. And he’s like, we’re going to take a lot more risk and turn the firm into a global investment bank.
So, commodity firms by law have to keep. Customer assets segregated from their own assets every 2nd of every day. Well, it essentially risk all of his firm’s capital at 30 to 1 leverage on a single trade and the trade went against him a little bit there. The firm’s credit rating. Got downgraded, they were trying to hide their concentration from the rating agencies using offshore derivatives successfully hit them for 17 months.
But then once the rating agency has figured out just how risky these bets were. MF Global’s credit got downgraded and Corzine and Global actually had something called the break the glass plan, where they rated their own customers, liquidity, their own segregated accounts to fund the firm’s own liquidity.
So, basically, they went bankrupt Halloween 2011. There was a shortfall in the customer segregated asset pool of about 1.7 billion that resulted in the freezing of all 6.7 billion in customer assets. You know, traders being carried off the trading floor by security trading screens going black is completely unprecedented event.
No, 1 really knew to do. So, you know, I’m a lawyer. I never practiced. I never worked at a law firm. My litigation experience was an 8000-dollar pro bono case for my golf pro buddy. But you know, no 1 do what to do. Customers were all stranded. So, I’m like, okay, I got a temporary law license in New York.
Couple days after the bankruptcy filed this emergency motion saying that 90 percent should be distributed immediately. That went viral. I was on the front page of the New York Times business section and a black trench coat looking scary. Started getting about a 1000 phone calls a day to the point where my little sister who worked with us was hearing phones ringing in her sleep.
You know, I mean, it was really crazy. Our office became almost like a campaign headquarters. You had everybody at laptops. You know, going to pitch in, but you know, 1 of the guys who called was John rose, the son of Congressman Phil row. He had a brokerage firm that had 1000 accounts that I’m a global.
And he’s like, we should write a white paper and tell the American people why this is such a big deal. So, we did it. That went viral before, you know, it, we’re forming this nonprofit on the fly and I’m up in bankruptcy court against lawyers who want to billing 2. 4Billion with a B in fees in this case, and, you know, we were really aggressive. We propose the interim distribution plan that the trustee that the judge took over the trustee’s plan. So, the trustee wanted to make people wait 9 months for any money where they get 60 cents on the dollar back. Well, the judge took our plan where they got 72 cents on the dollar in 6 weeks.
You know, so then we, we focused on getting the rest of the money back. And that was a JPMorgan Chase. So, you know, I was on TV basically every day criticizing them because they were going and buying bankruptcy claims at 40 cents on the dollar from investors who were desperate for cash. Before we got that distribution, they were buying global bankruptcy assets.
They were the world’s biggest lender. They want them over a 1Billion dollars. They were their prime broker, you know, and they’re the ones who would receive the customer money and properly. So, I hammer them to the point that just daily, who was then the CEO of their investment bank. Now, he’s been exposed as the guy who apparently was funding Jeffrey Epstein’s pedophilia really class act just that just alias.
But anyway, he had my bank accounts and credit cards closed and retaliation. It was about 10 years before they closed Kanye’s bank account. So, you could really say that Kanye got to list. Right. But anyway, we, you know, we kept the pressure on that went viral. That was in Forbes. It was in the New York Times.
And you know, eventually JP Morgan couldn’t take the media pressure and, you know, they wrote a 1Billion dollar. Jack to settle it, and we wound up getting customers. 101 cents on the dollar.
Brian Thomas: Wow, that is an amazing story. And I remember back then during that crisis and the whole global I, I called a scandal at the time, but I had no idea that you were in the middle of that and really helping to advocate for.
The, the shareholders, people that had you know, obviously lost their money. So, thank you for the story. I think that was awesome. And James switching gears, let’s still talk a little bit about the global crisis. It was a pivotal moment for many in the futures industry. How did this event impact your perspective on financial regulation and the importance of transparent, ethical management of customer funds?
James Koutoulas: Yeah, so it definitely was a seminal event. About half of the brokers went out of business or merged within 10 years. I mean, it really. I mean, was it an earthquake in the business? And I think if we would have gotten involved, you’d probably be down to less than 10 futures brokers. Right because. You know, these, these customers, if you had 6.
7Billion that took years to get back a fraction of it, they would just be done with that market. Like, if you don’t have to absolutely trade it. You know, why would you if you’re segregated money could just be taken. Right? So. Basically, right as we were wrapping up global, another broker called went under where there’s a much smaller firm.
They were in Iowa. They were, you know, like, 5 percent of the size of global, but it’s still about 400Million where they basically were stealing margin money. They falsified bank statements for 10 years using a dot matrix printer. They represented that their U. S. bank accounts address for auditor confirmations was actually a P.
O. box and the self-regulatory organization in charge of auditing them. The National Futures Association didn’t go to the bank in 10 years. Like, they didn’t call. They didn’t like, look on U. S. banks website and call and get any independent confirmation. So, they were totally fooled by this 1 way, forging a statements for 10 years.
So. You know, I did that case pro bono to helped accelerate the recovery of about 300Million. Then I ran for the board of the N. F. A. I 1, I got put on the executive committee as well, too. And then, you know, I really just saw what a clubby kind of cesspool that organization is. You know, you had. You know, several people making close to a 1Million dollars a year at a regulator that doesn’t even know to call.
You had several people there who had spouses at the CFTC, which is the government regulator that’s supposed to oversee the NFA, you know, so you had all sorts of conflicts of interest. And then the board has what are called public directors who are people who aren’t active market participants in futures who are supposed to provide independent oversight.
And you know, I found for about 25 years, they hadn’t done proper conflicts of interest checks. Due diligence, there was no real vote by the board to appoint these people. There was just a voice vote at the executive committee where they would nominate the management slate. So, you know, I challenged that I, you know, I, I showed that these were improper.
How they were nominating these people and the president general counsel, the NFA actually falsified board meeting minutes to make it look like they had followed the procedures, even though they didn’t. So, I became a CFTC whistleblower. Then the NFA was paying media, like this guy, John Lothian, who’s an influential newsletter writer, paid him to demand my resignation.
Like you know, they changed the rules of the board to make it. A fire able offense to criticize the board that you’re on, even though they were doing all this stuff and you know, the CFTC never did anything about it. I took about 9 hours of depositions. Yeah, I had 2 witnesses on the executive committee who were begging to be deposed.
CFTC refused to depose them. Right? So, you know, when you get down, you know, the regulatory. Swamp, if you will. You know, it’s all really just smoke and mirrors. I, I, I don’t think us regulation, you know, makes anybody safer. You’ve got a lot of people who are corrupt and are there for their own interests.
And, you know, similarly, I’m also currently suing the SEC because they try to serve an unconstitutional subpoena on a crypto mean coin. Let’s go Brandon Coin. That’s, that’s critical of the Biden administration. So, yeah, I don’t really have a lot of confidence in the U. S. regulatory system.
Brian Thomas: Thank you for sharing and you’re really bringing more of this to light and I appreciate that.
We see a lot of corruption, especially in in this arena in wall street and the financial market. And I certainly appreciate it. And I know, you know, you’ve been on the hot seat and. Rightly so, because you’re, you’re really stirring the hornet’s nest. So, I appreciate you really diving in, fighting the corruption – just love the story and James last question of the day, given your extensive experience in commodities and futures trading, where do you see the future of these markets heading, especially with the integration of technology and digital assets?
James Koutoulas: Yeah, that’s a great question. I mean, futures are, it’s a very cyclical market, right? Like, just commodities in general, but you’ve seen the continued expansion over the years. I mean, futures originally were just to help farmers, like, hedge their crops. And whatnot, and airlines to hedge their fuel prices, but now financial futures actually dwarf.
Commodities, right? We have Bitcoin futures. We have Ethereum futures. We have options on Ethereum futures, right? So. You know, the listed derivative markets are actually a really powerful tool for risk management. Right? So, and, and, you know, we, we touched on on, you know, the on constitutional attacks on crypto for, for which they have no statutory authority.
But, you know, 1 of the fights in Congress now is that, you know, the CFTC actually should be doing more oversight of digital assets you know, then the SEC, because, you know, many of these coins are not securities. They weren’t sold pursuant to investment contracts. So that puts them squarely you know, in the commodity space.
So, I mean, I think that that legislation, I mean, it’s probably going to have to wait until a new administration comes in. But you know, having sensical statutes covering digital assets and having rules that recognize that they are very different than stocks and commodities while they, there are similarities, right?
That is essential to the U. S. Being a continued leader in the space, because let me tell you, we’re way behind the rest of the world there. Like, every other major jurisdiction has cryptocurrency legislation and regulation. We have neither and you know, it’s a real problem. And I think now the market, you see this bull run.
Here you know, BTC ETFs getting approved after the DC appellate court ruled that the SEC was quote, arbitrary and capricious in its denial of the gray scale, gray scale BTC ETF conversion, right? People kind of just see the SEC as a joke, right? Like the industry is rallying behind Coinbase and Kraken.
You know, I think most people are very supportive of my lawsuit against the SEC where they didn’t even allege let’s go. Brandon coin as a security. You know, so it’s clearly. Politically motivated, but I, I just think society wise, it’s sad. To see institutions like the SEC follow after the CDC, these are once revered and respected, you know, government institutions that have now been exposed as, as being, you know, corrupt for lack of a better word.
Brian Thomas: Thank you and you really touched on some deep things today. This could be definitely an hour podcast, James, but really do appreciate that. Love to hear more about it. Obviously, you know, that our publication is built on blockchain. We’re very supportive of crypto and the blockchain technology. So again, kudos to you.
We’re very supportive of what you’re doing out there and we’re behind you a hundred percent. So, you bet James, it was such a pleasure having you on today. And I look forward to speaking with you real soon.
James Koutoulas: Thank you. Have a great day and stay warm.
Brian Thomas: Bye for now.
James Koutoulas Podcast Transcript. Listen to the audio on the guest’s podcast page.
