As much as $1.2 billion in customer funds may be missing from MF Global's (OTC: MFGLQ) coffers, the trustee in charge of liquidating the company's accounts said in a statement this morning.

No one should be surprised. A timeline produced by the Commodity Futures Trading Commission shows that the original estimate, made in the early hours of Oct. 31, put the missing customer funds at $900 million. Days later it would be revised to $600 million.

What's at stake
Which figure is correct? No one knows yet, but James Koutoulas has his doubts about the new number.

"I think the number is a little too convenient in that it matches the excess equity at the holding company," said Koutoulas, who leads the Commodity Customer Coalition, or CCC, in an interview. "At this point we have to start talking about fraudulent conveyance and clawbacks."

Fraudulent conveyance allows customers to reclaim funds moved without their knowledge or consent. Here, it means if the court and trustee rule that fraud has occurred, regulators would be empowered to claw back all of the missing $1.2 billion. Assuming it can be found, that is.

Plenty is as stake. Without the umbrella of fraudulent conveyance, the 7,000 or so MF Global customers represented by the CCC could be thrust into a pool of unsecured creditors that includes deep-pocketed banks. JPMorgan Chase (NYSE: JPM), Bank of America (NYSE: BAC), Deutsche Bank (NYSE: DB), and the Wilmington Trust arm of M&T Bank (NYSE: MTB) are all battling for scraps.

It's an ugly story that involves big egos, past frauds, epic regulatory failures, and systemic risks to the American financial system. And it's only just beginning. Keep the first aid kit handy.

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