artists_beware | Advice requested! Tracing in Deviant Art contest!

So. I entered a contest on a deviantart.com which was based around the Fullmetal Alchemist character, Hohenheim. The first place contest winner was determined, but it was a three way tie between second and third place. I was one of the three.

Here are the two entries I was competing with:

1. Entry 1
2. Entry 2

Anyway, I soon got a post on facebook from the admin of the group who was hosting the contest. She said that someone evidently reported that one of the contestants had cheated by tracing the image! That person was disqualified without any doubts or hesitation.

Me and some friends were goofing off when I told them that one of the entries had traced artwork. So, jokingly, I started to examine entry 2 for any tracing as well. It turns out... It was also influence to copying. I had used an image in my artwork for reference for how the character looked, and I thought it looked suspiciously like the reference used in my image. Well it turns out, entry 2 had traced the very reference I used.

My Reference
Entry 2

Here's a direct comparison I made:

http://farm8.staticflickr.com/7278/7499135362_4f39af2dc9_b.jpg

Anyway! I decided to report this... I was already confirmed third place, which was basically a single prize artist so I was happy since third and second place were the same prize and first place had already been determined. I was happy with being third! But I wasn't happy that this artist was cheating someone else out of a prize which otherwise could be given to someone who had a completely original work.

So. I did. And this was the conversation I had between the admin in charge, (I also included the original facebook post that told me there was cheating going on in the first place.)

http://farm8.staticflickr.com/7108/7504269712_4ec070aec5_k.jpg

The admin ultimately decided to ask the entry artist if he traced...to which he replied that he only used it as reference... Tell me--if someone was going to ask a cheater if they cheated--what would he say if a prize and his reputation was on the line?

Anyway... I'm not sure what to do... I'm just confused and feeling strange about the entire thing... Any advice would be helpful. Thank you!