Sarah didn’t realise her co-founder was rewriting history until she was sitting across from a lawyer.
The emails were all there. The Slack threads too. Every time a decision had gone badly, her co-founder had quietly revised the story of why it had been made — who had pushed for it, who had raised concerns, whose idea it originally was. By the time the dispute became formal, there were two completely different versions of the same three years.
Her lawyer had a word for it. Pretextual.
Sarah’s story is fictional. What happened to Ted Gill, Charlie Cleveland and Max McGuire at Unknown Worlds is very much not.
If the Musk vs Altman trial earlier this year taught us anything similar, it’s that private messages become the main story long before anyone sees a courtroom.
A $250 million word
In March 2026, Vice Chancellor Lori Will of the Delaware Court of Chancery handed down one of the most striking rulings in recent business history. At its centre was a single legal term that most founders have never heard — but probably recognise the moment you describe it.
Pretextual.
The case — Fortis Advisors LLC v. Krafton Inc. — involved the founders of Unknown Worlds, the studio behind the beloved underwater survival game Subnautica. In 2021, South Korean gaming giant Krafton acquired Unknown Worlds for around $500 million, with an earnout clause that could pay the founders and CEO an additional $250 million if Subnautica 2 hit specific sales targets after an early access launch.
In July 2025, Krafton fired CEO Ted Gill and co-founders Charlie Cleveland and Max McGuire. Their stated reasons: the game wasn’t ready for launch, and the founders had been downloading company files without authorisation.
The court found both reasons were invented after the fact.
“Krafton’s newly manufactured justifications for the terminations are pretextual,” Judge Will wrote in her ruling. And then, in a passage that should make every founder and every board member sit up: “Frustrated by the Key Employees’ refusal to forfeit operational control and facing a nine-figure liability, Krafton went searching for a pretext.”
They didn’t find a reason to fire the founders. They went looking for one.
What pretextual actually means — and where it comes from
The word pretext comes from the Latin praetextum — to disguise, to cover over. It entered English legal language through employment discrimination law, where it became a formal term of art for a specific and recognisable pattern of behaviour: a false reason given for an action, designed to mask the real motive.
In plain English — one employment lawyer put it memorably — “pretext means lame excuse.”
In legal terms it’s more precise than that. Pretextual behaviour has three consistent hallmarks:
- The stated reason changes over time
- The stated reason doesn’t hold up to scrutiny
- There’s evidence of a different, undisclosed motive running underneath
Sound familiar? It should. Because this pattern shows up in co-founder disputes long before anyone is sitting in a courtroom. It shows up in board meetings, in investor conversations, in the way one founder starts to narrate a shared history slightly differently every time they tell it. It feels like gaslighting.
The evidence that made it undeniable
What makes the Krafton case so extraordinary — and so useful for founders paying attention — isn’t just the ruling. It’s what was found in discovery.
The ChatGPT document
Before the firings, Krafton’s CEO asked ChatGPT how to structure a strategy to avoid paying the earnout. The AI generated a step-by-step playbook. Krafton’s CEO then followed that playbook almost exactly: seizing the Steam publishing platform, posting unauthorised messages on Unknown Worlds’ website, and firing the founders on 1 July 2025.
The court found the AI-generated strategy document and quoted it at length in the ruling as direct evidence that Krafton’s justifications were manufactured. As one legal analysis put it: “The document did not merely corroborate other evidence of bad faith. It was the evidence.”
Then Krafton’s CEO deleted the ChatGPT logs.
The document had already been produced in discovery. The deletion made things considerably worse.
“Project X”
Internal Slack threads recovered in discovery referenced a secret internal initiative — codenamed Project X — which was Krafton’s plan to seize operational control of Unknown Worlds and force a renegotiation of the earnout. The judge quoted directly from those Slack messages in her ruling. As was the case in the Musk vs Altman lawsuit
The shifting story
During the case itself, Krafton’s lawyers changed their stated reasons for the firing. First the game wasn’t ready. Then the founders had stolen materials. The judge found both versions were invented after the fact. The data downloads the founders made — Krafton’s second justification — were found to have been made to protect the studio’s own work during what the founders correctly recognised as a takeover attempt. The data was kept confidential and returned promptly. The court rejected the allegation entirely.
One stated reason became two. Neither was true. That is pretext in its purest legal form.
Why founders in the “messy middle” need to care about this
The Krafton case involves an acquisition and a corporate acquirer, not two people who started a company together. But the underlying pattern is identical to what I see in co-founder disputes at scaling companies every week.
Here’s how it tends to go:
Something shifts. A fundraise changes the power dynamic. A new hire moves the centre of gravity. A pivot means one founder’s skills matter more than the other’s. Nobody talks about it directly. Instead, the story of past decisions starts to quietly change.
The founder who pushed hardest for the pivot is now remembered as the one who had doubts. The equity split that “everyone agreed to” is now described as something that was rushed, or not fully understood, or agreed under pressure. The original vision — which both founders shaped together — is now claimed by one as their own.
None of this is usually conscious. Most of the time it’s not cynical. It’s just the way humans rewrite uncomfortable history when they feel threatened or overlooked or undervalued.
But left unchecked, it becomes pretextual. And pretextual behaviour — whether in a Delaware courtroom or a founders’ offsite — has a cost.
The Stormline Map and where pretextual behaviour sits on it
In my work with scaling co-founder teams, I use the Stormline Map to help founders identify where they actually are in a conflict — not where they think they are.
Pretextual behaviour is a late-stage Stormline signal. By the time one founder is routinely rewriting the history of shared decisions, the relationship has usually been drifting for six to eighteen months. What looks like a sudden crisis almost always has a long, quiet trail behind it.
The earlier signals are subtler:
- Decisions stop being made together and start being announced
- One founder uses “we” in public and “I” with investors
- Disagreements that used to be argued out loud start being worked around instead
- “We’ll discuss that later” becomes a permanent deferral
By the time justifications are shifting and the story is changing, you’re already deep in the storm. The time to act was several stages back.
This is why I ask co-founder teams to treat their agreements and their meeting rhythms as a living operating system — not a one-off legal exercise. The Partnership Pulse™ Protocol is built around exactly this: separating the conversations that belong to the Owner, the Director, the Manager and the Human, so that important decisions are made consciously, recorded clearly, and can’t be quietly revised later.
“Always Be Contracting” — your best defence against pretext
The Krafton case is also a masterclass in what happens when “Always Be Contracting” breaks down at the point of acquisition.
The earnout clause existed. The contract was signed. But the operating relationship; the day-to-day understanding of who controls what, who makes which calls, what “ready for launch” actually means, was never properly re-contracted when Krafton became the majority owner and the dynamic fundamentally changed.
That gap between the formal contract and the lived reality is where pretext grows.
Always Be Contracting doesn’t mean lawyering every Slack message. It means treating every significant shift — new investor, new structure, new power dynamic, new product milestone — as a trigger to re-state what you’re agreeing to, in plain language, and record it somewhere you’d both be comfortable showing a judge.
When your informal operating agreements match your formal ones, pretextual behaviour is much harder to sustain. The paper trail tells a consistent story. There are no gaps to fill with manufactured justifications.
When they drift, as they did catastrophically at Krafton and Unknown Worlds — you hand the other side all the raw material they need to build a case against you. Or in Krafton’s case, you hand a judge exactly what she needs to find against you.
I wrote about this in more detail in the context of the Musk vs Altman case — how your diary, Slack and emails can become Exhibit A — and the Krafton case makes the same point even more starkly.
What to do if you recognise this pattern
If you’re reading this and thinking “that shifting justification thing sounds familiar,” here are three things to do before this becomes a legal matter:
1. Name it, privately first.
Write down, not in Slack, not in email, in a private note — the specific instances where the story has changed. Dates, decisions, what was said before and what’s being said now. You need to be clear in your own head about what you’re actually seeing before you raise it.
2. Bring it to a structured conversation.
Not a hallway conversation, not a text message, not a heated board meeting. The Shareholder Council — your Owner hat space — is where this belongs. Big picture, direct, with both of you present and a record of what’s discussed. “I’ve noticed the way we’re describing [decision] has shifted, and I’d like us to talk about it” is a sentence that’s hard to misrepresent if you’ve said it clearly, in the right forum.
3. Re-contract explicitly.
Whatever you agree in that conversation, write it down in plain language and keep a copy. Not because you’re planning for litigation — but because clear, mutual agreements leave very little room for pretext to take root.
The Krafton CEO went looking for a justification after the decision had already been made. Don’t give anyone in your orbit that opportunity.
The case is still live
One final note worth flagging: Fortis Advisors v. Krafton is not finished. Phase one — reinstatement and operational control — has been decided. Phase two, which will determine whether Krafton’s actions wrongfully impaired the $250 million earnout and what damages result, is still pending.
That means the story is still unfolding. And the lessons it’s generating — about AI as evidence, about Slack as a discoverable record, about the cost of manufactured justifications — are going to keep coming.
For co-founders in the messy middle of scaling, it’s one of the most instructive cases of the decade. Not because it involves a gaming studio or a $250 million payout, but because the human pattern at its centre — going looking for a pretext — is as old as business partnerships and as current as your last difficult board meeting.
Don’t wait until someone goes looking for a pretext
The founders of Unknown Worlds did almost everything right. They built something people loved, they hit their milestones, they protected their work when they felt a takeover coming. And they still ended up in a Delaware courtroom for eight months.
What would have changed things? A cleaner operating agreement at the point of acquisition. A re-contracting conversation when the relationship shifted. A governance rhythm that made manufactured justifications harder to sustain.
That’s exactly what I help co-founder teams build — before it gets expensive.
From Dream Team to Divorce? is my forthcoming book for founders in the messy middle: the ones who haven’t hit crisis point yet but can feel something shifting. If you’d like early access to tools including the Partnership Pulse™ Protocol and the Stormline Map, join the pre-order list at janehales.com.
Because the best time to deal with pretextual behaviour is before anyone has gone looking for it
And if you haven’t read The Day Your Diary Goes to Court yet, start there — it covers the Musk vs Altman angle that runs parallel to everything in this piece.