As far as I know, merit trading is not forbidden, but discouraged. Please see below
a quote of LoyceVSelling merit isn't against the rules, but could get you red trust. Theymos said not to worry about merit trading too much, in the long run they won't have any sMerit left. Let them spend $100 on 5 Merit, that's not doing them any good, they're just wasting their money.
And another quote of theymos (which, in my opinion, denies the rule mentioned by you).
Merit sales, transfers to aliases, back-and-forth trading, etc. are not much of an issue. All illegitimate merit will decay, and will account for a tiny and very expensive fraction of the total merit economy. It's basically a rounding error; fight it where convenient, but waste no sleep over it.
Isn't it looking like a "new merit cycler" being formed here?

I don't think so. If it was though, they should wear Foxpup's Merit Cycling Club avatar, which is not the case here
