[ by Melanie Gretchen ] Three months after MF Global collapsed, government investigators are beginning to concede that the missing $1.2 billion in customer money will never be found or recovered.  They're pinning this new belief - that it's possible for so much money to "vaporize" - because of the chaotic, out of control trading at MF Global during the week preceding the company's bankruptcy filing on 10/31/11. Here's what we're looking at, according to the WSJ:

• 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.

• Other scenarios have gained traction in recent weeks - e.g., the possibility that MF Global suffered steep losses on investments that were funded by 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 the firm's accounts at JPMorgan Chase and other banks, as well as at trade-clearing partners, such as DTC and LCH.Clearnet Group.

• Those banks, clearing firms and other companies continue to deny that they knowingly were 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 served as middlemen, facilitating trades between MF Global and counterparties, the funds they touched were then scattered widely, complicating the search.

What has been recovered. Of the $6 billion kept at MF Global, $5.3 billion has been located, according to trustee James Giddens, who's handling the bankruptcy filing for the U.S.-based brokerage operation.  Nevertheless, hundreds of millions of customer dollars may never see the light of day, due to litigation with other parts of MF Global, including its UK arm, and US officials might never be able to recover those funds. Giddens' office has been able to return some 72% of the money in customers' US accounts when MF Global filed for bankruptcy at the end of October.  Money in accounts outside the US remains frozen, and officials have received few big breaks in the case. Interestingly, the amount of missing customer funds is still being debated.  While Giddens believes the short fall is at least $1.2 billion, the CFTC and CME Group, parent of the Chicago Merc and New York Merc, are estimating a smaller loss. Going forward. This Thursday, a hearing will be held by the House Financial Services subcommittee, which will consider the securities firm's risk-management practices and the role of credit-rating firms in the collapse.  Michael Roseman, former CRO at MF Global - who raised serious concerns several times in 2010 about the growing bet on European bonds by Corzine - is scheduled to testify. For more details, visit [NY Post, 1/30/12] and [Zero Hedge].