Court orders CEO reinstatement after Krafton's AI-assisted scheme to avoid $250 million earnout payment
South Korean gaming conglomerate Krafton Inc. has been ordered to reinstate the CEO of its subsidiary, Unknown Worlds Entertainment, after the court found the company orchestrated an improper takeover campaign, with the plan partially designed using ChatGPT.
The court ruled that Krafton breached its 2021 acquisition agreement by wrongfully terminating three key executives without valid cause, in what the court characterised as a scheme to avoid paying up to $250 million in earnout payments.
Takeover of game studio
Unknown Worlds Entertainment, the studio behind the popular underwater survival game Subnautica, was acquired by Krafton in October 2021 for $500 million upfront, with an additional earnout of up to $250 million contingent on revenue performance.
The Equity Purchase Agreement guaranteed that founders Charlie Cleveland and Max McGuire, along with CEO Ted Gill, would retain "operational control" of the studio and could only be terminated for cause.
The relationship deteriorated as Unknown Worlds prepared to release Subnautica 2 in 2025.
Internal projections showed the sequel would generate significant revenue, easily triggering the earnout.
According to court documents, Krafton CEO Changhan Kim feared he had agreed to a "pushover" contract and became concerned about his company's financial exposure.
AI-assisted strategy
The court's opinion reveals an unusual corporate strategy: Kim turned to artificial intelligence for guidance.
"Fearing he had agreed to a 'pushover' contract, Krafton's CEO consulted an artificial intelligence chatbot to contrive a corporate 'takeover' strategy," the court document read.
When the AI chatbot informed Kim that the earnout would be "difficult to cancel," he complained to colleagues that the agreement was "a contract under which we can only be dragged around," according to internal Slack messages cited in the opinion.
At ChatGPT's suggestion, Kim formed an internal task force dubbed "Project X" to either force a settlement or execute a takeover.
The AI-generated strategy included recommendations to lock down the Steam publishing platform, pursue "preemptive framing" with the gaming community, and prepare "systematic materials for legal defence."
The court noted that Kim "admitted at trial that he had deleted specific, relevant ChatGPT logs."
The terminations and legal battle
In July 2025, Krafton terminated Cleveland, McGuire, and Gill, initially citing concerns about premature game release.
During litigation, Krafton shifted its justification, claiming the founders had abandoned their roles and improperly downloaded company data.
The court rejected these arguments, finding Krafton's justifications "pretextual." The contract defined terminable cause as an "intentional act of dishonesty" — requiring a conscious objective to deceive.
"Krafton failed to meet its burden," the court wrote, noting that the founders' role changes were transparent and the data downloads were defensive measures during a corporate crisis.
It ordered Krafton to immediately reinstate Gill as CEO with full operational authority, including control over Subnautica 2's early access launch.
To compensate for lost time, the earnout testing period was extended by 258 days — the exact duration of Gill's ouster.
"Restoring his position and operational control will allow the studio to launch its highly anticipated game using the community-driven development model that made it successful," the court wrote.
The decision represents Phase One of a bifurcated proceeding. Phase Two will address whether Krafton wrongfully impaired the earnout and any resulting monetary damages.
