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- Cloud9 issued equity through its employee stock plan to seven League of Legends Championship Series players, in violation of the league’s rules.
- Cloud9 failed to notify the league’s organizer of the restricted stock units and did not acknowledge them in the contract summary sheets that were provided to the League.
- Subsequently, Cloud9 is being fined $175K USD, or $25K per player.
Esports organization Cloud9 has been fined $175K by the League of Legends League Championship Series (LCS) for contract violations stemming from the issuance of equity as a form of compensation to seven different players. The organization is being fined $25K for each violation.
An investigation led by LCS staff discovered that many teams whose players had signed contract extensions did not submit the contract summary sheets to the league for review. When it was found out that the league did not have the required documentation, it gave teams a week, starting on June 21, 2019, to submit said sheets.
As summary sheets came into the league from the various teams, Cloud9 submitted a sheet whereas, “none of the amendments, nor any of the summary sheets reflected the RSU (Restricted Stock Units) 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.’”
However, after another document was sent to the league by Cloud9 staff labeled as an RSU, it became aware of the violations and started the investigation.
The investigation found that players had either received their RSUs as a bargained portion of their contract or had RSUs gifted. The league’s statement states that the players from Cloud9 had 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.”
When asked about the violations, Cloud9 ownership told the league that they were unaware of the rule change and that there was a lack of communication within the organization.
As a result of the investigation, Cloud9 will be fined a total of $175K with additional penalties. Cloud9 will also be directed to buy back those outstanding RSUs that were issued to former players and cancel the existing RSU grants or create a substitute for the RSU grants through renegotiation of their current contracts with players on the team’s roster.
Cloud9’s fines will total approximately $330K-$605K after the RSU buyback and substitutes.
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