In re MERUS CAPITAL

 
 
 
 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 70405 / September 16, 2013 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-15490 
 
 
In the Matter of 
 
MERUS CAPITAL 
PARTNERS, LLC,  
 
Respondent. 
 
 
 
 
ORDER INSTITUTING CEASE-AND-
DESIST PROCEEDINGS PURSUANT TO 
SECTION 21C OF THE SECURITIES 
EXCHANGE ACT OF 1934, MAKING 
FINDINGS, AND IMPOSING A CEASE-
AND-DESIST ORDER AND CIVIL 
PENALTY 
  
I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
Exchange Act of 1934 (“Exchange Act”), against Merus Capital Partners, LLC (“Merus Capital” 
or “Respondent”).  
 
II. 
 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
purpose of these proceedings and any other proceedings brought by or on behalf of the 
Commission, or to which the Commission is a party, and without admitting or denying the findings  
herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making 
Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below.   

 2 
 
III. 
 
 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that:  
 
Summary 
 
1. These proceedings arise out of violations of Rule 105 of Regulation M of the 
Exchange Act by Merus Capital, a proprietary trading firm located in New York, New York.  Rule 
105 prohibits buying an equity security made available through a public offering, conducted on a 
firm commitment basis, from an underwriter or broker or dealer participating in the offering after 
having sold short the same security during the restricted period as defined therein. 
 
 2. On three occasions, from August 2012 through April 2013, Merus Capital bought 
offered shares from an underwriter or broker or dealer participating in a follow-on public offering 
after having sold short the same security during the restricted period.  These violations collectively 
resulted in profits of approximately $8,402.  
 
Respondent 
 
 3. Merus Capital Partners, LLC is a limited liability company organized under the 
laws of Delaware with its principal place of business in New York, New York.  Merus Capital is a 
proprietary trading firm and, as such, invests its own capital.  Merus Capital is registered with the 
Philadelphia Stock Exchange as a broker dealer. 
 
Legal Framework 
 
4. Rule 105 makes it unlawful for a person to purchase equity securities from an 
underwriter, broker, or dealer participating in a public offering if that person sold short the 
security that is the subject of the offering during the restricted period defined in the rule, absent 
an exception.  17 C.F.R. § 242.105; see Short Selling in Connection with a Public Offering, Rel. 
No. 34-56206, 72 Fed. Reg. 45094 (Aug. 10, 2007) (effective Oct. 9, 2007).  The Rule 105 
restricted period is the shorter of the period:  (1) beginning five business days before the pricing 
of the offered securities and ending with such pricing; or (2) beginning with the initial filing of a 
registration statement or notification on Exchange Act Form 1-A or Form 1-E and ending with 
pricing.   
 
5. “The goal of Rule 105 is to promote offering prices that are based upon open 
market prices determined by supply and demand rather than artificial forces.”  Final Rule:  Short 
Sales, Exchange Act Release No. 50103.  Rule 105 is prophylactic and prohibits the conduct 
irrespective of the short seller’s intent in effecting the short sale. 
                                                 
1
 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any other person 
or entity in this or any other proceeding. 
 

 3 
Merus Capital’s Violations of Rule 105 of Regulation M 
 
 6. On August 3, 2012, Merus Capital sold short 24,412 shares of American 
International Group Inc. (“AIG”) at prices ranging between $31.15 and $31.37.  On August 3, 
2012, AIG announced the pricing of a follow-on offering of 163,934,426 shares of its common 
stock at $30.50 per share.  Merus Capital received an allocation of 1,000 shares in that offering.  
The difference between Merus Capital’s proceeds from the restricted period short sales of AIG 
shares and the price for 1,000 shares purchased in the offering was $840.  Thus, Merus Capital’s 
participation in the AIG offering netted total profits of $840.    
 
 7. During the period from March 5, 2013 through March 6, 2013, Merus Capital sold 
short a total of 82,500 shares of MGIC Investment Corp. (“MGIC”) at prices ranging between 
$4.89 and $6.13.  On March 7, 2013, MGIC announced the pricing of a follow-on offering of 135 
million shares of its common stock at $5.15 per share.  Merus Capital received an allocation of 
22,500 shares in that offering.  The difference between Merus Capital’s proceeds from the 
restricted period short sales of MGIC shares and the price for 22,500 shares purchased in the 
offering was $6,300.  Thus, Merus Capital’s participation in the MGIC offering netted total profits 
of $6,300. 
 
  8. During the period from April 4, 2013 through April 10, 2013, Merus Capital sold 
short a net total of 1,300 shares of Synergy Pharmaceuticals Inc. (“SGYP”) at prices ranging 
between $6.09 and $7.33 per share.  On April 10, 2013, SGYP announced the pricing of a follow-
on offering of 16,375,000 shares of its common stock at $5.50 per share.  Merus Capital received 
an allocation of 25,000 shares in the offering.  The difference between Merus Capital’s proceeds 
from the restricted period short sales of SGYP shares and the price for 25,000 SGYP shares 
purchased in the offering was $1,262.  Thus, Merus Capital’s participation in the SGYP offering 
netted total profits of $1,262.           
 
 9. In total, Merus Capital’s violations of Rule 105 resulted in profits of $8,402. 
 
Violations 
 
 10. As a result of the conduct described above, Merus Capital violated Rule 105 of 
Regulation M under the Exchange Act.  
 
 
Merus Capital’s Remedial Efforts 
11. In determining to accept the Offer, the Commission considered remedial 
acts promptly undertaken by Respondent and cooperation afforded to Commission staff. 
IV. 
 
 In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
agreed to in Respondent Merus Capital’s Offer. 

 4 
 
 Accordingly, it is hereby ORDERED that: 
 
 A. Pursuant to Section 21C of the Exchange Act, Respondent Merus Capital cease and 
desist from committing or causing any violations and any future violations of Rule 105 of 
Regulation M of the Exchange Act;   
 
 B. Merus Capital shall within fourteen (14) days of the entry of this Order, pay 
disgorgement of $8,402, prejudgment interest of $63.65 and a civil money penalty in the amount of 
$65,000 to the United States Treasury.  If timely payment is not made, additional interest shall 
accrue pursuant to SEC Rule of Practice 600.  Payments must be made in one of the following 
ways: 
 
(1) Respondent may transmit payment electronically to the Commission, which will 
provide detailed ACH transfer/Fedwire instructions upon request;
2
 
(2) Respondent may make direct payment from a bank account via Pay.gov through the 
SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
(3) Respondent may pay by certified check, bank cashier’s check, or United States postal 
money order, made payable to the Securities and Exchange Commission and hand-
delivered or mailed to 
 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK  73169 
 
 Payments  by  check  or  money  order  must  be  accompanied  by  a  cover  letter  identifying 
Merus Capital as  a Respondent in these proceedings, and the file number  of these proceedings;  a 
copy  of  the  cover  letter  and  check  or money  order  must  be  sent  to Gerald  Hodgkins,  Associate 
Director,  Division  of  Enforcement,  Securities  and  Exchange  Commission, 100  F  St.,  NE, 
Washington, DC 20549.  
 
 By the Commission. 
 
 
 
       Elizabeth M. Murphy 
       Secretary 
 
                                                 
2
  The minimum threshold for transmission of payment electronically is $1,000,000.  For amounts below the 
threshold, respondents must make payments pursuant to options (2) or (3) above. 

UNITED STATES OF AMERICA 

 Before the 

 SECURITIES AND EXCHANGE COMMISSION 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 70405 / September 16, 2013 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-15490 

 

 

In the Matter of 

 

MERUS CAPITAL 

PARTNERS, LLC,  

 

Respondent. 

 

 

 

 

ORDER INSTITUTING CEASE-AND-

DESIST PROCEEDINGS PURSUANT TO 

SECTION 21C OF THE SECURITIES 

EXCHANGE ACT OF 1934, MAKING 

FINDINGS, AND IMPOSING A CEASE-

AND-DESIST ORDER AND CIVIL 

PENALTY 

  

I. 
 

 The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-

and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 

Exchange Act of 1934 (“Exchange Act”), against Merus Capital Partners, LLC (“Merus Capital” 

or “Respondent”).  

 

II. 
 

 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 

of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 

purpose of these proceedings and any other proceedings brought by or on behalf of the 

Commission, or to which the Commission is a party, and without admitting or denying the findings  

herein, except as to the Commission’s jurisdiction over it and the subject matter of these 

proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-

and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making 

Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below.   



 2 

 

III. 
 

 On the basis of this Order and Respondent’s Offer, the Commission finds1 that:  

 

Summary 

 

1. These proceedings arise out of violations of Rule 105 of Regulation M of the 

Exchange Act by Merus Capital, a proprietary trading firm located in New York, New York.  Rule 

105 prohibits buying an equity security made available through a public offering, conducted on a 

firm commitment basis, from an underwriter or broker or dealer participating in the offering after 

having sold short the same security during the restricted period as defined therein. 

 

 2. On three occasions, from August 2012 through April 2013, Merus Capital bought 

offered shares from an underwriter or broker or dealer participating in a follow-on public offering 

after having sold short the same security during the restricted period.  These violations collectively 

resulted in profits of approximately $8,402.  

 

Respondent 

 

 3. Merus Capital Partners, LLC is a limited liability company organized under the 

laws of Delaware with its principal place of business in New York, New York.  Merus Capital is a 

proprietary trading firm and, as such, invests its own capital.  Merus Capital is registered with the 

Philadelphia Stock Exchange as a broker dealer. 

 

Legal Framework 

 

4. Rule 105 makes it unlawful for a person to purchase equity securities from an 

underwriter, broker, or dealer participating in a public offering if that person sold short the 

security that is the subject of the offering during the restricted period defined in the rule, absent 

an exception.  17 C.F.R. § 242.105; see Short Selling in Connection with a Public Offering, Rel. 

No. 34-56206, 72 Fed. Reg. 45094 (Aug. 10, 2007) (effective Oct. 9, 2007).  The Rule 105 

restricted period is the shorter of the period:  (1) beginning five business days before the pricing 

of the offered securities and ending with such pricing; or (2) beginning with the initial filing of a 

registration statement or notification on Exchange Act Form 1-A or Form 1-E and ending with 

pricing.   

 

5. “The goal of Rule 105 is to promote offering prices that are based upon open 

market prices determined by supply and demand rather than artificial forces.”  Final Rule:  Short 

Sales, Exchange Act Release No. 50103.  Rule 105 is prophylactic and prohibits the conduct 

irrespective of the short seller’s intent in effecting the short sale. 

                                                 
1 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any other person 

or entity in this or any other proceeding. 

 



 3 

Merus Capital’s Violations of Rule 105 of Regulation M 

 

 6. On August 3, 2012, Merus Capital sold short 24,412 shares of American 

International Group Inc. (“AIG”) at prices ranging between $31.15 and $31.37.  On August 3, 

2012, AIG announced the pricing of a follow-on offering of 163,934,426 shares of its common 

stock at $30.50 per share.  Merus Capital received an allocation of 1,000 shares in that offering.  

The difference between Merus Capital’s proceeds from the restricted period short sales of AIG 

shares and the price for 1,000 shares purchased in the offering was $840.  Thus, Merus Capital’s 

participation in the AIG offering netted total profits of $840.    

 

 7. During the period from March 5, 2013 through March 6, 2013, Merus Capital sold 

short a total of 82,500 shares of MGIC Investment Corp. (“MGIC”) at prices ranging between 

$4.89 and $6.13.  On March 7, 2013, MGIC announced the pricing of a follow-on offering of 135 

million shares of its common stock at $5.15 per share.  Merus Capital received an allocation of 

22,500 shares in that offering.  The difference between Merus Capital’s proceeds from the 

restricted period short sales of MGIC shares and the price for 22,500 shares purchased in the 

offering was $6,300.  Thus, Merus Capital’s participation in the MGIC offering netted total profits 

of $6,300. 

 

  8. During the period from April 4, 2013 through April 10, 2013, Merus Capital sold 

short a net total of 1,300 shares of Synergy Pharmaceuticals Inc. (“SGYP”) at prices ranging 

between $6.09 and $7.33 per share.  On April 10, 2013, SGYP announced the pricing of a follow-

on offering of 16,375,000 shares of its common stock at $5.50 per share.  Merus Capital received 

an allocation of 25,000 shares in the offering.  The difference between Merus Capital’s proceeds 

from the restricted period short sales of SGYP shares and the price for 25,000 SGYP shares 

purchased in the offering was $1,262.  Thus, Merus Capital’s participation in the SGYP offering 

netted total profits of $1,262.           

 

 9. In total, Merus Capital’s violations of Rule 105 resulted in profits of $8,402. 

 

Violations 

 

 10. As a result of the conduct described above, Merus Capital violated Rule 105 of 

Regulation M under the Exchange Act.  

 

 

Merus Capital’s Remedial Efforts 

11. In determining to accept the Offer, the Commission considered remedial 

acts promptly undertaken by Respondent and cooperation afforded to Commission staff. 

IV. 

 

 In view of the foregoing, the Commission deems it appropriate to impose the sanctions 

agreed to in Respondent Merus Capital’s Offer. 



 4 

 

 Accordingly, it is hereby ORDERED that: 

 

 A. Pursuant to Section 21C of the Exchange Act, Respondent Merus Capital cease and 

desist from committing or causing any violations and any future violations of Rule 105 of 

Regulation M of the Exchange Act;   

 

 B. Merus Capital shall within fourteen (14) days of the entry of this Order, pay 

disgorgement of $8,402, prejudgment interest of $63.65 and a civil money penalty in the amount of 

$65,000 to the United States Treasury.  If timely payment is not made, additional interest shall 

accrue pursuant to SEC Rule of Practice 600.  Payments must be made in one of the following 

ways: 

 

(1) Respondent may transmit payment electronically to the Commission, which will 

provide detailed ACH transfer/Fedwire instructions upon request;2 

(2) Respondent may make direct payment from a bank account via Pay.gov through the 

SEC website at http://www.sec.gov/about/offices/ofm.htm; or  

(3) Respondent may pay by certified check, bank cashier’s check, or United States postal 

money order, made payable to the Securities and Exchange Commission and hand-

delivered or mailed to 

 

Enterprise Services Center 

Accounts Receivable Branch 

HQ Bldg., Room 181, AMZ-341 

6500 South MacArthur Boulevard 

Oklahoma City, OK  73169 

 

 Payments by check or money order must be accompanied by a cover letter identifying 

Merus Capital as a Respondent in these proceedings, and the file number of these proceedings; a 

copy of the cover letter and check or money order must be sent to Gerald Hodgkins, Associate 

Director, Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, 

Washington, DC 20549.  

 

 By the Commission. 

 

 

 

       Elizabeth M. Murphy 

       Secretary 

 

                                                 
2  The minimum threshold for transmission of payment electronically is $1,000,000.  For amounts below the 

threshold, respondents must make payments pursuant to options (2) or (3) above.