01 May 2011

Open Letter From Ted Butler to Custodian of SLV Silver ETF

Ted Butler raises an interesting point about the large short interest in SLV.

I think his faith in the custodians, the ETF, and in the past, the CFTC and SEC, to do the right thing is probably misplaced. So far they have done nothing but extend and pretend.

The shorts are impaled, and their schemes are unraveling across a broad set of dollar denominated assets. This is not the time when I would expect honest disclosures, but even more coverups, deceptions, market manipulation, propaganda, distractions, intervention, and misdirection.

The highly leveraged scheme that is the US financial system is going down in a spiral like manner, slowly but surely. It will find its level, but where that is, no one can say. It's downfall will come not with disclosure and reform, but with hysteria and disbelief, and denial to the very end.

And then the difficult task of rebuilding can begin.

April 28, 2011

Mr. Laurence D. Fink
Chairman and CEO
55 East 52nd Street
New York, NY 10055

Dear Mr. Fink,

I am writing to alert you to a possible circumstance of fraud and manipulation in your popular ETF, SLV, due to the excessive short-selling of its shares. Current reports indicate the most recent level of total short sales now exceed 36 million shares. This is an increase of more than 14 million shares from the previous reported amount.  ShortSqueeze.com

Each share of SLV requires that one ounce of silver be held at the Trust's custodian (minus accumulated ed management fees), according to the prospectus. Since short sellers of SLV shares do not deposit metal with the Trust's custodian, this means that the buyers of the more than 36 million shorted shares of SLV do not have metal backing, as required by the prospectus. It is my belief that many of the shares shorted have been shorted precisely because no physical silver was available to deposit. If I am correct, this may constitute fraud and manipulation, possibly on the part of Authorized Participants (APAs) who make deposits and redemptions of metal in the Trust.

I am a silver analyst and a fan of SLV. I had raised this issue with the previous owner and sponsor of the trust, Barclays Global Investors (BGI). I never did receive a satisfactory answer from BGI about the shorted shares issue, although they did agree to list and publish the bar serial number and weights held in the Trust after I publicly urged them to do so. I am hopeful that BlackRock might be more responsive to this issue.

Publicly-traded ETFs that have specific metal backing are highly unique securities. Perhaps a small short position may be overlooked on a temporary basis until the metal is deposited in the Trust due to logistical considerations. But a short position that represents more than 10% of the outstanding shares issued means that many buyers of the shares have no metal backing. This is clearly not in keeping with the spirit of the prospectus that each share issued be backed by one ounce of silver on deposit with the custodian.

I trust you will look into and rectify this circumstance.


Ted Butler

Butler Research, LLC