Esports Organization Cloud9 Fined for Violating 'League of Legends' Stock Equity Rules

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It has been ordered to pay fines totaling approximately $330,000 to $605,000 for violating a rule set forth in 2017.

Esports organization Cloud9 has been fined by Riot Games for violating a rule regarding employee stock plans for the company's League of Legends competitive league. 

The violation stemmed from Cloud9 issuing equity to seven players in violation of a rule set forth by the league in November 2017 which prohibits League Championship Series (LCS) team owners from "acting as players" and players from "owning a portion of the team for which they played." 

In June, the LCS became aware of a number of contract extensions signed by various teams which were not properly submitted to the league. Cloud9 submitted 10 documents via email to the league on June 24 which included contract amendments, summary sheets and documents labeled as grants of restricted stock units (RSUs) for several players. The RSUs were flagged for an internal investigation in mid-August, an investigation which was "prioritized" in October, following Cloud9's return from the World Championships event in Europe.

The investigation found that players who received RSUs in the company fell into two categories: "those that bargained for RSUs in lieu of salary and those that were gifted RSUs." The LCS claims that there was a "generalized belief by players and their representatives that the RSUs were permissible because they did not believe they would be offered equity if it was against the rules."

The league states that, during an interview with Cloud9 ownership, the organization claimed to be "unaware of the rule change" prohibiting player equity ownership before franchising. The LCS claims that Cloud9's response "boiled down to the idea that one hand didn’t know what the other hand was doing."

The result of the investigation is that Cloud9 will be fined $25,000 per player for a total fine of $175,000. Additionally, the organization is directed to "pay certain amounts to players no longer on Cloud9’s roster in an aggregate cash amount that compensates those players at prevailing fair market value" and "cancel the existing RSU grants, and/or to substitute for the RSU grants through renegotiation of their current contracts" with current players on the team's roster.

In total, Cloud9's fines amount to approximately $330,000 to $605,000.

A request for comment from Cloud9 was not immediately returned.