Riot Games fines Cloud9 $175,000 for violating player equity rule

Cloud9 shake hands with Griffin after losing to the South Korean team at the League of Legends World Championship group stage. Courtesy of Riot Games

Riot Games announced Tuesday that it is fining League of Legends Championship Series team Cloud9 $175,000 and forcing the team to pay its players additional money after the team violated league rules by issuing stock units to seven players, according to a competitive ruling released by the game developer.

Over the past 16 months, Cloud9 issued restricted stock units to seven players across two categories: one in which players took lower salaries in exchange for stock and the other in which those units were gifted to players. That action was a violation of the league rules that stated no active player is allowed to own equity within a team. Riot will fine Cloud9 $25,000 per player violation, for a total of $175,000.

In November 2017, Riot created a rule that prohibited active players from owning equity. Of Cloud9's active summer lineup, five players -- top laner Eric "Licorice" Ritchie, junglers Dennis "Svenskeren" Johnsen and Robert "Blaber" Huang, AD carry Zachary "Sneaky" Scuderi and support Tristan "Zeyzal" Stidam -- were all granted restricted stock units, sources familiar with the investigation told ESPN. Two former players, mid laner Nicolai "Jensen" Jensen and Andy "Smoothie" Ta, were granted restricted stock units during their time as Cloud9 players, according to sources.

According to Riot, Cloud9 did not proactively notify the developer of contract amendments or extensions that occurred during the season, which violated the rules of disclosure to the league. Cloud9 also broke league rules by issuing stock units to active players.

Of those seven players, only two were represented by agents or attorneys when their restricted stock unit amendments were negotiated, according to an internal investigation document released by Riot to its 10 teams.

Cloud9 will have to pay Riot the $175,000 fines and pay out players for the restricted stock units or renegotiate contracts with players at a higher rate, according to the ruling. Riot estimates the total fines will range from $330,000 to $605,000.

The contract amendments and restricted stock units were filed to Riot in June after several other teams in the league heard rumors of organizations extending or amending contracts without the league being notified, sources said. That led to Riot calling for a full contract audit across all 10 teams in the summer.

When Cloud9 filed their documents, Riot league operations staff archived them but overlooked the restricted stock unit clauses and documents. Riot later discovered this clerical error in late August and has been investigating since, including throughout Cloud9's time participating in the League of Legends World Championship in October in Berlin.

In October, Riot announced a rule change that would see players with three or more years of consecutive service to a team become eligible to own equity. Only three players in the LCS this year qualify: Sneaky, Team SoloMid mid laner Søren "Bjergsen" Bjerg and Trevor "Stixxay" Hayes. Cloud9's grant of restricted stock units to Sneaky came before the rule change.

On Nov. 9, Cloud9 agreed to send Svenskeren and Zeyzal and Academy players Matthew "Deftly" Chen and Ziqing "Kumo" Zhao to Evil Geniuses. In November 2018, Jensen was transferred to Team Liquid and Smoothie to the now-defunct Echo Fox.