CCP investigated and decided this in the dev blog CCP Sreegs wrote:
The people who sought to benefit from this exploit will receive no gain from this system. Because this was essentially a system where you could print LP, even if ISK was provided as an input, it is classified as an exploit.
Because the players made efforts to inform us about the issue their accounts will remain in good standing. We have temporarily seized all LP points and store items from them. Once we're done determining how much each person has benefitted we will remove the LP gained value in LP and items and return the ISK invested in the purchase of items to them. This essentially will set each of them back to the original point at which they began this activity. The person who reported the issue will receive the usual PLEX for Snitches reward.This is essentially the outcome that Dsan was arguing for. The Cross-Dressing Zebra host argued that it was not an exploit, but rather clever use of market manipulations and faction warfare mechanics to generate profit and while he agreed that the loophole should be fixed, it was CCP's fault for not finding this loophole early and releasing the code which allowed for the 5 Goons to make the profit. He went on to argue, as the debate raged, that if this was an exploit than certain ways of fitting your ships to get a tactical advantage were exploits too as a reductio ad absurdum.
The debate really comes down whether this "loophole" is an "exploit".
Some exploits are easy to identify. Preventing someone from warping or docking by using a web because of the undock from station mechanics is definitely an exploit. Having POSes magically spawn vast amounts of moon goo without inputs is an exploit. Others are not to clear: buying ships on the market and self destructing them for insurance payout higher than you paid for example, or using Margin Trading skill to get people to buy items at stupidly high prices thinking they can sell them back to a buy order that you setup but automatically fails due to not having enough ISK is another unclear example.
I have a guide I use to determine if I think something is an exploit: do I cackle maniacally when I use it with little risk to myself? Then its an exploit.
But back to the faction warfare LP generation mechanics. There is no obvious bug or glitch being exploited here so I can see how some people might be tempted to claim that this was not an exploit, but rather an unintended consequence of the Inferno release and that the Goons should be allowed to keep the profits of their hard work calculating the process to which their vast profits could be made. Since ISK was not generated out of thin air, no harm done, right? And its not an exploit to use market manipulation to raise the prices of certain items, right? Well, yes, but it is an exploit to leverage the connection between the market item average price and the loyalty point payout for opposing faction kills with those items, especially when you have collaborating buyer and seller to modify the average market price at essentially no cost. Its not cool if I give you $10 to buy a item $1 from me for $10 so I can tell the next customer the market price is $10.
The line might be hard to see, but it is there and it was crossed in a big way. Had the five Goons tested it, made a few hundred million, and reported it to CCP then they would be responsible citizens. Exploiting it for reportedly trillions of ISK profit and mucking about with Faction Warfare balance in the process is cheating, pure and simple, and they should consider themselves fortunate that they only are being set back to their starting position without bans.