Benzinga Talks to MF Global Customer Counsel James Koutoulas

Benzinga Radio recently had the opportunity to

about the MF Global missing funds saga. Mr. Koutoulas is the CEO of Typhon Capital Management and recently founded the Commodity Customer Coalition (

), which is comprised of over 7,000 customers of MF Global. In his role as an attorney and spokesperson for the CCC, Koutoulas was able to provide Benzinga with an insider perspective on the legal maelstrom that has been unleashed in the wake of the futures brokerage's bankruptcy, and the subsequent discovery of $600 million in missing customer funds. On Monday, the Commodity Customer Coalition filed court papers objecting to a lien on MF Global assets secured by J.P. Morgan

in exchange for allowing the bankrupt firm to use around $8 million in cash for another 5 days. J.P. Morgan, who is the largest creditor of MF Global, is also seeking "super-priority" liens on MF assets, which would put the bank at the head of the line to recover funds - before even customers are made whole. Koutoulas told Benzinga that "I think JP Morgan realizes we made some really good points in our objection to their motion, and they are stalling the hearing on this as much as they can." The CCC's objection will be heard on November 30, after being delayed twice. Koutoulas figures that the issue is important enough to J.P. Morgan that they will "throw $20 million at lawyers to figure out a way to beat our little grassroots coalition on it." Despite J.P. Morgan's high priced lawyers and stalling tactics, Koutoulas is hoping to get the lien issue resolved within two weeks. The issue at hand with regard to these liens is who should be paid first, J.P. Morgan or customers who are missing funds from their accounts? Koutoulas told Benzinga that if MF Global did indeed commingle client funds with their own accounts, as many suspect, customers of the brokerage would have clawback rights similar to the Madoff case. The legal term is "fraudulent conveyance." In order to protect customer's the CCC is fighting for a spot on the creditor's committee. He said, "Customers, in my opinion, would have rights of recovery from the $1.2 billion in excess equity that sits in the holding company, which is why we are fighting to get on the creditor's committee, so we have a say in protecting recoveries on the holding company assets." He added that if the missing funds are the result of criminal conduct, it could open up a directors and officers insurance policy on former MF Global CEO Jon Corzine, along with the firm's directors, for potential customer recoveries. That policy is worth $200 million. "We will aggressively be going after all of those sources so that customers are made whole," Koutoulas said. Despite going up against a behemoth like J.P. Morgan, the CCC believes that they have a very strong position in the legal wranglings. The organization is backed by some very experienced lawyers and over 7,000 MF customers have joined in under two weeks. Koutoulas noted, "We've gone in there and stopped the train for the moment on the JP Morgan cash collateral use. We've gotten the judge to realize the timeliness of the situation, and the judge is an honorable man. He is putting the pressure on the trustees to speed up the process." The other major stakeholder in the MF Global mess is the CME Group

, the world's largest futures exchange. CME regulated MF Global, which transacted significant business on the exchange, and Koutoulas believes that not only does CME have the most to lose from a marketing perspective in the wake of the scandal, but they might actually be liable for the missing money. He said, "I also think we've put a lot of pressure on CME. I've reached out to the CME. I told them, 'Look, there are cases where you could (1) be liable for this,' due to the way that they have advertised the sanctity of seg [related] funds in order to drive business through their exchange. I've said, 'Look, your stock is down something like $2.5 billion in market cap this week, which makes the $600 million look like a drop in the bucket.'" CME shares have lost around 5.50% since Monday, November 14. From the CCC's and Koutoulas' point of view, the CME could resolve this situation fairly quickly if they step up to the plate and do the right thing with regards to MF Global customers who traded on their exchanges. He argued that "the CME could take this major problem that they are having and turn it into an opportunity for goodwill by going out and just putting up the rest of the shortfall. The customers get their money, everybody feels safe, they restore confidence to the futures market, and they get volume going through their exchange again." He even suggested to the vice-Chairman of the CME that he could argue in front of the court that the judge grant a lien to CME on the MF Global holding company assets if the exchange were to put up a temporary fund to make MF customers whole. At this point, the CME has already agreed to put up $300 million to get customers their money back, so in order to back the entire amount, the company only needs to pledge another $300 million. Koutoulas believes that this is going to happen. "I think, within a couple of days, the CME is going to be forced to step up and make customers whole. Once that happens, we can talk about things like class actions to get people the damages back from forced liquidation, and all of that." From the perspective of CME, this would appear to be the obvious business decision, given the ongoing black eye that the entire futures industry is enduring as a result of what has transpired in the wake of MF Global's blow-up. "It's good business to make customers whole as fast as possible, and it's not like they are going to cut a check they are never going to get back." However the situation is resolved, it seems logical that customers should be made whole, through CME or the bankruptcy process or a combination of both, prior to claims from creditors such as J.P. Morgan and Bank of America

being applied to MF assets. Koutoulas underscored the importance of the CCC's efforts to protect customers from these banks on the creditors' committee in the holdings companies' bankruptcy case. He said that J.P. Morgan, Bank of America, and others, are not only attempting to steer the committee, at the expense of MF customers, but "are trying to set up vulture funds where they can buy customers' claims for pennies on the dollar and then get paid out once this whole thing is resolved - which I think is a conflict of interest." Mr. Koutoulas wrapped up his interview with Benzinga with a very stern assessment of former CEO Jon Corzine's potential role in this entire mess. Corzine is also the former governor of New Jersey, a former U.S. Senator and the former co-Chairman of Goldman Sachs

. Koutoulas said, "We also want to see Corzine in court, under oath, and we want to hear his answer to where he thinks the money is and give him the option to be honorable and forthright, or to be a coward and take the Fifth. I want to show the American people that no matter how connected you are, no matter if you were the Governor of New Jersey, no matter if you were a senator, if you break the law you should go to jail."