That's not really breaking rules. Only thing it might impact is if an icon can be given out
That's the problem. The tournament should be postponed. There are two prizes for the winner. A cash prize AND a trophy icon. If it was just the money I suppose anyone could be a dick and selectively choose who can be in the tournament (though that will raise a lot of questions about authenticity, who would have actually won, and a LOT of "IF"s making the tournament totally illegitimate.)
Smeagol, according to Mouse's post, is not allowed to offer an icon to the winner if he is illicitly and unlawfully banning specific player(s) from the tournament.