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Cloud9 hit with $175,000 fine after Riot Games investigation reveals equity rule violations

Cloud9 hit with $175,000 fine after Riot Games investigation reveals equity rule violations

Riot Games has announced that it will fine League of Legends Championship Series (LCS) team Cloud9 $175,000 following an investigation that discovered two rule violations.

A competitive ruling released by Riot Games on Tuesday reveals that the team unfairly negotiated equity grants in the form of restricted stock units (RSUs) for seven players and did not correctly portray the existence of these RSUs or side agreements in summary sheets provided to the developer.

As a result of these rule violations, Cloud9 will be fined $25,000 per player, totaling $175,000.

Cloud9 is required to pay specific amounts to the players remaining on the team’s roster to cancel the existing RSU grants. Alternatively, current contracts can be renegotiated to adjust for the removal of these RSU grants. The team has also been direct to pay specific amounts to the players who are no longer on the team’s roster.

The competitive ruling notes that the total fine based on the restitution options is expected to be between $330,000 and $605,000.

Bjergsen signs with Team SoloMid
Soren “Bjergsen” Bjerg signed a two-year extension with Team SoloMid in October and became a part-owner. (Riot Games)

New rules which came into effect during November 2017 prohibit any GM, head coach, strategic coach, LACS Coach, and any owner of a team from being a member of the full roster. Previously, there were no such rules, meaning that players were able to own a portion of a team for which they played.

Riot Games’ announcement revealed that Cloud9 issued equity through its employee stock plan to seven players over the course of sixteen months following the rule change.

The document declares that “Cloud9 failed to notify the League of the restricted stock units and did not acknowledge them in the contract summary sheets that were provided to the League.”

However, the document reveals that Cloud9 did notify the League of the RSUs, but mishandling from both parties led to this complicated scenario.

A section of the competitive ruling notes, “On June 24, Cloud9 staff provided an email with ten documents attached, including contract amendments, summary sheets, and documents labeled as RSUs (grants of Restricted Stock Units) for several players.”

Although Riot Games employees received documents labeled as RSUs in June, the competitive ruling reveals that these amendments did not include accurate information.

More importantly, it seems, Cloud9 failed to disclose the RSUs in the attached summary sheet:

“None of the amendments, nor any of the summary sheets reflected the RSU grants and the summary sheets indicated that there are no ‘other agreements between the team owner and players/coach relating to the release, trade, termination, trade or assignment of the player.’ In July, staff from Cloud9 followed up with an additional document labeled as an RSU.”

Riot Games admits to a “clerical error,” in which the league operations team member became aware of the RSUs but did not identify the problem at the time of processing and instead entered the contracts in the global contract database (GDC). The developer has noted that a second staff member will now review all received contract data going forward.

Part of the competitive ruling notes, “we have also updated the summary sheets to specifically reference equity grants and other side deals for anything of value.” This section suggests that there was no request for RSU information in the summary sheet at the time that Cloud9 submitted the contract data.

Ultimately, Cloud9 had disclosed information regarding the RSUs to Riot Games, but the developer did not become aware of the significance until a later date.

The situation becomes even more muddled considering Søren “Bjergsen” Bjerg recently acquired part ownership in Team SoloMid in October despite being an active mid-laner.

Following the announcement, Riot Games spoke of new eligibility criteria that had been introduced:

“Recently, we updated the eligibility criteria for LCS players to own equity in their organization,” League of Legends Championship Series commissioner Chris Greeley told ESPN.

“No player having played less three consecutive competitive years for their team is eligible. All ownership changes are subject to League approval. The policy prohibiting owners from being players will be updated for the 2020 season.”

As we edge closer to the start of the 2020 season, all eyes will be on the announcement of these details and how they will impact LCS teams in the years to come.

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