* Trustee last week put shortfall estimate at $1.2 bln
* Regulators believe $220 mln in funds double-counted
* Trustee reaffirms estimate, says "preliminary"
(Adds law enforcement source, trustee spokesman)
By Christopher Doering
WASHINGTON, Nov 28 U.S. regulators and law enforcement believe a bankruptcy trustee has overestimated the amount of customer funds missing at MF Global MFGLQ.PK, according to sources familiar with the matter.
One source said on Monday that regulators believe at least $220 million is being double-counted by the trustee, taking the total shortfall at the brokerage to just under $1 billion.
A law enforcement source told Reuters last week that federal investigators also doubt the $1.2 billion figure.
The discrepancy is the latest frustration for customers hoping to get more of their cash out of frozen brokerage accounts.
The disagreement on the amount missing has also revealed some tension between officials charged with cleaning up after MF Global's failure.
James Giddens, the trustee liquidating MF Global's broker-dealer unit, has already faced the wrath of investors who feel he has not moved quickly enough to release customer funds.
"We're not going to refute the numbers publicly because our end goal is the same: get the money back," the source familiar with regulators' thinking said.
The source added that the trustee gave regulators only a half-hour notice that he was increasing the shortfall estimate to $1.2 billion last week, about double initial estimates from regulators.
A spokesman for Giddens said all estimates should be considered "preliminary."
"The amount is still not known with certainty, but there is no disagreement that it is significant," spokesman Kent Jarrell said.
But Jarrell reaffirmed that the shortfall "could be as much as $1.2 billion or more," even if Giddens is able to recover all money currently at U.S. depositories.
MF Global filed for Chapter 11 protection on Oct. 31 after the New York-based company revealed it had made a $6.3 billion bet on European sovereign debt, spooking investors.
Regulators are trying to determine what happened to the missing money and whether MF Global may have improperly mixed customer funds with its own, a violation of industry rules.
Investigators have said they believe it is likely that MF Global transferred customer funds into accounts used by the firm.
The source familiar with regulators' thinking said the government is "making progress" understanding MF Global's books so there is a chance the estimate of just under $1 billion could change again.
"It's like untangling years worth of electrical wires behind a desk, figuring out where they all go and what you have to go through," the source said. "Their books are a mess and there are no straight lines that would make things easy."
(Reporting by Christopher Doering in Washington; Additional reporting by Nick Brown and Matthew Goldstein in New York; Editing by Tim Dobbyn)
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