I haven't read this entire thread yet (and probably won't, since I'm not interested in this particular drama), but unless LFC_Bitcoin is a merit source--which might well be the case, as he's one of the top recent merit senders--he can do whatever he wants with his sMerits.
Even if he is a merit source, the only "rule" we publicly know of in relation to merit sources and their source merit distribution is that they aren't allowed to sell merits. They can distribute it any other way as far as I know. Every merit source decides for themselves what they spend their merits on. It should be quality posts, or any other posts you find pleasing for whatever reason.