Eh I don't see why people are up in arms or surprised about this. When I was admin of a MUD, sufficiently high-level immortals could load up any character (player) that they wanted. The character would be loaded in but not be attached to a login connection, so basically a "dummy" or monster without any AI script. You could manipulate the character though (have it perform commands). This could occur even if the player could not log in (such as if banned), and it didn't need the player's password.
One of the reasons to do it this way, as opposed to directly doing a database query, is that it uses the same game loading function as when the player logs in and the same save function as when the player logs out, allowing the immortal to inspect/change the character's state in the middle (such as get rid of items etc.), and have the changes be "safe"...or as safe as regular logging in and out can be, anyway. This way you don't need someone that's familiar with the database to manipulate it, and you don't need to code in a separate database query and keep it up to date or directly make database changes which can potentially corrupt the character file if not done correctly. Instead, the load and save functions are always up to date so you don't have to worry as much about an immortal corrupting the player files when they do this.
I find it laughable that people are claiming that Turbine is violating their own EULA. How exactly is Turbine doing that, when the EULA explicitly says that Turbine owns all rights, titles, and interest in the game, and the player is merely given a license for use subject to the EULA (and exploiting violates the EULA)? Also, the terms of service explicitly says "Turbine may revise, suspend, terminate or delete the Account at any time for any reason or no reason, with or without notice to you" which means that they do have the right to load your account and do as they please with it. Certainly a company wouldn't do that willy-nilly in order to retain customers (the same way a restaurant wouldn't eject customers willy-nilly even if they have a "right to refuse service" sign) but they have the right to do so.
What's more interesting to me is that Turbine would do this openly. The MUD had a number of invisible rooms where the characters could be loaded in to be taken care of and no mortals could see them or interact with them. Yet it seems like Turbine never bothered to code this type of stuff in, but the "extreme prejudice" is done out in the open. To me that speaks more about how antiquated the software is, or the lack of thought in enforcement mechanisms (code-wise), or both; the MUD was around in the 1990s (and is still around last I checked) and already had this type of functionality.
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