(NYPost) Nearly three months after MF Global Holdings collapsed, officials hunting for  an estimated $1.2 billion in missing customer money increasingly believe that  much of it might never be recovered, according to people familiar with the  investigation.

As the sprawling probe that includes regulators, criminal and congressional  investigators, and court-appointed trustees grinds on, the findings so far  suggest that a “significant amount” of the money could have “vaporized” as a  result of chaotic trading at MF Global during the week before the company’s Oct.  31 bankruptcy filing, a person close to the investigation was cited as saying  Monday.

Many officials now believe certain employees at MF Global dipped into the  “customer segregated account” that the New York company was supposed to keep  separate from its own assets — and then used the money to meet demands for more  collateral or to unfreeze assets at banks and other counterparties as they grew  more concerned about their financial exposure to MF Global.

Investigators also are examining other scenarios that have gained traction in  recent weeks, such as the possibility that MF Global suffered steep losses on  investments made using customer money. Officials investigating the case have  looked into whether such investments were appropriate under rules at the  time.

As money poured out of MF Global, much of it likely passed through J.P.  Morgan Chase and other banks where the securities firm had accounts, as well as  trade-clearing partners such as Depository Trust & Clearing and LCH.Clearnet  Group, people familiar with the matter said.

Those companies have denied being knowingly in possession of any missing MF  Global money, and any efforts to make them fill the hole would face daunting  hurdles. And because the firms usually were middlemen between MF Global and  other counterparties, the funds they touched were then scattered widely,  complicating the search.

Of the $6 billion kept at MF Global by farmers, hedge funds, floor traders  and other customers when panic erupted over its exposure to European sovereign  debt and shaky financial outlook, about $5.3 billion has been located, according  to James Giddens, the bankruptcy trustee for the securities firm’s US-based  brokerage operation.  (read more)

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