Yep. Really, really stupid. Don't know what Klopp was thinking but I highly doubt things are that much more lax over in Germany that he could claim ignorance of FA protocol.
What I find intriguing is that Soton no doubt know that his departure is inevitable - either this window or next summer - and could've made a massive windfall on it by selling to you guys. Everyone else balked at the insane price tag they slapped on him (he's worth £35m tops imho), yet you seemed willing to pay. Soton stood to gain enormously by overlooking Klopp's error, but they haven't.
My gut feeling is that this is more about pride than pockets. You've spent the past 5 years picking off their best and brightest stars, and the feeling seems to very much be "enough is enough, this ends here".