CEO’s ChatGPT Legal Advice Backfires, Costs $250M Bonus
▼ Summary
– A US court ordered Krafton to reverse its removal of the leadership at its studio, Unknown Worlds Entertainment, which it attempted to avoid paying a $250 million bonus.
– Krafton had acquired the studio with an agreement to pay the bonus if Subnautica 2 met sales targets and to let it operate independently.
– The CEO, Changhan Kim, consulted ChatGPT to devise a strategy called “Project X” to take control of the studio and void the bonus payment.
– The court ruled the leadership was ousted without valid cause and stressed executives must not outsource good-faith decisions to AI.
– The studio’s CEO has been reinstated, the bonus payment period extended, and Krafton stated it disagrees with the ruling but is focused on the game’s release.
When corporate leadership turns to artificial intelligence for legal strategy instead of qualified counsel, the results can be catastrophic. A recent U.S. court ruling against South Korean gaming firm Krafton illustrates this peril perfectly, voiding a CEO’s attempt to use ChatGPT to orchestrate a studio takeover and avoid a $250 million contractual bonus. The case underscores the severe risks of relying on AI for complex legal and fiduciary decisions.
The conflict originated with Krafton’s 2021 acquisition of Unknown Worlds Entertainment, the developer behind the hit game Subnautica. The $500 million deal included a provision for a $250 million earn-out bonus if the sequel, Subnautica 2, achieved specific sales milestones. Crucially, the agreement guaranteed the studio’s operational independence, with founders Charlie Cleveland and Max McGuire, alongside CEO Ted Gill, retaining control unless removed for legitimate cause.
As development on the sequel progressed last year, internal forecasts indicated the sales targets would likely be met, triggering the substantial bonus payment. Krafton CEO Changhan Kim viewed this potential payout as a “bad deal” and felt his company had been “taken advantage of.” His own legal advisors warned that dismissing the studio’s leadership, even for alleged cause, would not nullify the payment obligation and would expose Krafton to significant legal and reputational risk.
Disregarding this professional advice, Kim reportedly consulted ChatGPT to devise an alternative strategy. Delaware Court of Chancery Vice Chancellor Lori Will noted in her ruling that the CEO, “fearing he had agreed to a ‘pushover’ contract,” used the AI chatbot to contrive a corporate takeover plan. Dubbed “Project X,” the AI’s suggested approach involved forming an internal task force to renegotiate terms or seize control of the studio. The chatbot recommended tactics like securing publishing rights, taking control of the game’s source code, publicly reframing the conflict around “quality” and “fan trust” concerns, and even drafting communications to sway public opinion.
The execution of this AI-generated plan proved disastrous. Krafton removed Cleveland, McGuire, and Gill from their positions, a move that immediately sparked alarm within the Subnautica gaming community and destabilized the studio. The court subsequently found the executives were ousted without valid cause, rendering their removal improper. The ruling emphasized that corporate officers have a duty to exercise independent judgment and cannot outsource good-faith business decisions to artificial intelligence.
As a remedy, the court has reinstated Ted Gill as CEO of Unknown Worlds, with the authority to reappoint the co-founders. To compensate for the disruption caused by Krafton’s actions, the earn-out bonus period has been extended. Krafton has stated it disagrees with the court’s decision and is evaluating its options, while also affirming its commitment to delivering Subnautica 2 for its early access release. This case serves as a stark reminder that in high-stakes corporate governance, there is no substitute for human expertise and ethical judgment.
(Source: Hindustan Times)