In re MERU CAPITAL GROUP

 
 
 
 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 70402 / September 16, 2013 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-15489 
 
 
In the Matter of 
 
MERU CAPITAL GROUP, 
LP,  
 
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 Meru Capital Group, LP. (“Meru 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 and Civil Penalty (“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 Meru Capital, a New York-based registered investment adviser.  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 two occasions, from December 2009 through November 2011, Meru 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 $262,616.  
 
Respondent 
 
 3. Meru Capital Group, LP is a Delaware limited partnership with its principal place 
of business in New York, New York.  Meru Capital Group, LP has been registered with the 
Commission since August 2011; it was not registered at the time of the violations.  Meru Capital 
Group, LP provides advisory services to one domestic fund and three offshore funds and has 
total assets under management in excess of $542 million. 
 
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 
 
Meru Capital’s Violations of Rule 105 of Regulation M 
 
 6.  On December 15, 2009, Meru Capital sold short 500,000 shares of Citigroup Inc. 
(“C”) during the restricted period at a price of $3.6399 per share.  On December 16, 2009, C 
announced the pricing of a follow-on offering of its common stock at $3.15 per share.  Meru 
Capital received an allocation of 1 million shares in that offering.  The difference between Meru 
Capital’s proceeds received from the restricted period short sales of C shares and the price paid for 
the 500,000 shares received in the offering was $244,950.00.  Respondent also improperly 
obtained a benefit of $17,450.00 by purchasing the remaining 500,000 shares at a discount from 
C’s market price.  Thus, Meru Capital’s participation in the C offering netted total profits of 
$262,400.   
 7. On November 11, 2011, Meru Capital sold short 648 shares of Dunkin’ Brands 
Group (“DNKN”) during the restricted period at a price of $25.9581 per share.  On November 16, 
2011, DNKN announced the pricing of a follow-on offering of its common stock at $25.62 per 
share.  Meru Capital received an allocation of 5,000 shares in that offering.  The difference 
between Meru Capital’s proceeds from the restricted period short sales of DNKN shares and the 
price paid for the 648 shares received in the offering was $215.52.  Thus, Meru Capital’s 
participation in the DNKN offering netted total profits of $215.52. 
 
  8. In total, Meru Capital’s violations of Rule 105 resulted in profits of $262,616. 
 
Violations 
 
 9. As a result of the conduct described above, Meru Capital violated Rule 105 of 
Regulation M under the Exchange Act.  
 
Meru Capital’s Remedial Efforts 
10. 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 Meru Capital’s Offer. 
 
 Accordingly, it is hereby ORDERED that: 
 
 A. Pursuant to Section 21C of the Exchange Act, Respondent Meru 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. Meru Capital shall within fourteen (14) days of the entry of this Order, pay 
disgorgement of $262,616, prejudgment interest of $4,600.51, and a civil money penalty in the 

 4 
amount of $131,296.98 (for a total of $398,513) 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 
Meru  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 W. Hodgkins, Associate 
Director,  Division  of  Enforcement,  Securities  and  Exchange  Commission, 100  F  Street,  N.E., 
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. 70402 / September 16, 2013 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-15489 

 

 

In the Matter of 

 

MERU CAPITAL GROUP, 

LP,  

 

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 Meru Capital Group, LP. (“Meru 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 and Civil Penalty (“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 Meru Capital, a New York-based registered investment adviser.  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 two occasions, from December 2009 through November 2011, Meru 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 $262,616.  

 

Respondent 

 

 3. Meru Capital Group, LP is a Delaware limited partnership with its principal place 

of business in New York, New York.  Meru Capital Group, LP has been registered with the 

Commission since August 2011; it was not registered at the time of the violations.  Meru Capital 

Group, LP provides advisory services to one domestic fund and three offshore funds and has 

total assets under management in excess of $542 million. 

 

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 

 

Meru Capital’s Violations of Rule 105 of Regulation M 

 

 6.  On December 15, 2009, Meru Capital sold short 500,000 shares of Citigroup Inc. 

(“C”) during the restricted period at a price of $3.6399 per share.  On December 16, 2009, C 

announced the pricing of a follow-on offering of its common stock at $3.15 per share.  Meru 

Capital received an allocation of 1 million shares in that offering.  The difference between Meru 

Capital’s proceeds received from the restricted period short sales of C shares and the price paid for 

the 500,000 shares received in the offering was $244,950.00.  Respondent also improperly 

obtained a benefit of $17,450.00 by purchasing the remaining 500,000 shares at a discount from 

C’s market price.  Thus, Meru Capital’s participation in the C offering netted total profits of 

$262,400.   

 7. On November 11, 2011, Meru Capital sold short 648 shares of Dunkin’ Brands 

Group (“DNKN”) during the restricted period at a price of $25.9581 per share.  On November 16, 

2011, DNKN announced the pricing of a follow-on offering of its common stock at $25.62 per 

share.  Meru Capital received an allocation of 5,000 shares in that offering.  The difference 

between Meru Capital’s proceeds from the restricted period short sales of DNKN shares and the 

price paid for the 648 shares received in the offering was $215.52.  Thus, Meru Capital’s 

participation in the DNKN offering netted total profits of $215.52. 

 

  8. In total, Meru Capital’s violations of Rule 105 resulted in profits of $262,616. 

 

Violations 

 

 9. As a result of the conduct described above, Meru Capital violated Rule 105 of 

Regulation M under the Exchange Act.  

 

Meru Capital’s Remedial Efforts 

10. 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 Meru Capital’s Offer. 

 

 Accordingly, it is hereby ORDERED that: 

 

 A. Pursuant to Section 21C of the Exchange Act, Respondent Meru 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. Meru Capital shall within fourteen (14) days of the entry of this Order, pay 

disgorgement of $262,616, prejudgment interest of $4,600.51, and a civil money penalty in the 



 4 

amount of $131,296.98 (for a total of $398,513) 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 

Meru 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 W. Hodgkins, Associate 

Director, Division of Enforcement, Securities and Exchange Commission, 100 F Street, N.E., 

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.