Unfinished Business

By: Theodore Butler & Israel Friedman

Almost eight months ago, I wrote an article titled "A Hidden Silver Default?" - http://news.silverseek.com/TedButler...

It was a detailed article on a complex subject - the unreported short selling of shares in the big silver exchange traded fund (ETF) run by Barclays and trading under the symbol SLV. I won’t repeat all the points made in that article, so I would urge you to read or reread the original, as the issue has surfaced again. Allow me to first summarize my original findings.

The short selling of shares of SLV (and other metal ETFs, like GLD and IAU) is fraudulent and represents a default and violation of the terms of the prospectus, which call for a specific quantity of metal to be deposited for each share issued (minus expenses). Any short sale circumvents this metal deposit requirement, leaving a certain amount of shares unbacked by metal. I wrote how some short selling of shares was tolerable on a very short-term basis and in limited quantities, due to the logistics of arranging for metal to be deposited with the custodian. However, long delays on large quantities of metals being deposited on shorted shares was fraudulent and a de-facto silver delivery default.

I am revisiting this issue because my analysis indicates the problem may have surfaced again. In my original article, I estimated that somewhere between 25 to 50 million ounces of silver were owed to the SLV, at that time. My analysis revolved around the change in the volume of trading of SLV shares compared to overall price action. Currently, that analysis leads me to conclude that 15 to 20 million ounces of silver are now owed to the SLV. By not depositing this amount of metal, due to the short selling of SLV shares, those sellers have, in effect, defaulted on their delivery requirements, as promised in the prospectus, and have defrauded all SLV shareholders. Click here to read the full report...