Judge foils AI-fueled takeover of 'Subnautica' video game developer

(CN) — A South Korean gaming conglomerate’s scheme to oust its subsidiary’s top executives using ChatGPT-designed plans failed Monday after a Delaware chancery judge ruled that the executives’ firings were contractually barred.

California-based video game developer Unknown Worlds Entertainment — best known for its action-adventure survival series “Subnautica” — was acquired in full by South Korean video game conglomerate Krafton Inc. in October 2021.

Krafton paid $500 million upfront as part of its purchase, with up to $250 million in performance-based payments based on Unknown Worlds’ revenue between the time of purchase and Dec. 31, 2025.

Additionally, the purchase agreement ensured that three “key employees” — founders Charlie Cleveland and Max McGuire, and CEO Ted Gill — would retain operational control of Unknown Worlds and could not be fired without cause.

However, as the Unknown Worlds neared early access release for a sequel, “Subnautica 2,” Krafton discovered it would likely suffer from its own success — a planned August 2025 release would almost certainly trigger the acquisition agreement’s earnout, likely costing the parent company between $191.8 million and $242.2 million.

In particular, Krafton CEO Kim Chang-han — who had personally led the acquisition of Unknown Worlds — began to openly worry he overpaid for the U.S. subsidiary.

Fearing he might earn a reputation as a “pushover” if Unknown Worlds reached the earnout threshold, Kim turned to AI chatbot ChatGPT for advice. At ChatGPT’s suggestion, Kim formed “Project X,” an internal task force aimed at either negotiating a deal on the earnout or executing a “Take Over” of Unknown Worlds.

As Kim helmed efforts to prevent triggering an earnout, Krafton continued to implement strategies designed by ChatGPT.

At ChatGPT’s recommendation and without input from the Unknown Worlds key employees, Krafton posted a June 12, 2025, message online falsely claiming close ties between Cleveland and McGuire. In Kim’s own words, this was done to “secure public support from fans and legal validation of [Krafton’s] legitimacy,” undermining any notion that the large corporation was attempting to exploit an indie developer.

Again at ChatGPT’s recommendation, Krafton locked down publishing rights of Subnautica 2 on video game distribution service Steam, effectively making it impossible for Unknown Worlds to launch its game.

Finally, Krafton followed ChatGPT’s recommendation of making several demands on Unknown Worlds’ key employees. These demands included reassigning Cleveland and McGuire as game director and technical director, respectively; and forcing the trio to negotiate a transition out of Unknown Worlds and into an earnout settlement.

However, as negotiations stalled by late June 2025, Kim shifted to a simpler plan.

On July 1, 2025, Krafton sent termination letters to Cleveland, McGuire and Gill, removing them from their positions on July 31, 2025. The lone ground for dismissal? “Intention to proceed with a premature release of Subnautica 2.”

As part of this takeover, the key employee’s replacements — three Krafton representatives — announced that Subnautica 2 would not be released for early access at all.

Anticipating their terminations, the trio had already devised a counter-plan: beginning in June 2025, all three members downloaded hundreds of thousands of Unknown Worlds documents to their personal computers. However, after Krafton discovered these downloads, the three members returned all of the downloaded files upon request.

Representing the former stockholders of Unknown Worlds, Fortis Advisors LLC sued Krafton in Delaware chancery court in July 2025, claiming Krafton had acted in bad faith and breached the acquisition agreement by firing the key employees without just cause.

During discovery, Krafton changed its reason for firing the key employees, asserting that the trio’s downloading of confidential information and Cleveland and McGuire’s transitions away from their original roles and responsibilities (described by Krafton as “semiretirement”) caused their terminations.

However, following an expedited trial, Delaware Vice Chancellor Lori W. Will on Monday ruled in favor of Fortis.

Because Krafton knew for years that Cleveland and McGuire had shifted their roles at Unknown Worlds away from direct Subnautica development, and because the key employees did not act to deceive Krafton in protecting Unknown Worlds’ data from an anticipated hostile takeover, neither reasoning succeeds in justifying the terminations, Will ruled.

“When an employer faces a contractual payout it wishes to avoid, it is heavily ‘incentivized to go rummaging through the employee’s history to find any reason it can to announce that the termination was really for cause,’” Will wrote. “That is precisely what happened here. Frustrated by the key employees’ refusal to forfeit operational control and facing a nine-figure liability, Krafton went searching for a pretext.”

As a result of the ruling, Krafton must reinstate Gill as CEO of Unknown Worlds. Additionally, Krafton is enjoined from impeding Gill’s authority over Subnautica 2’s early access launch; and the earnout period is extended to Sept. 15, 2026, with Fortis maintaining contractual rights to further extend the period to March 15, 2027.

Representatives for Fortis and Krafton could not be reached for comment.

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