First the confirmed story: Layoffs Confirmed At Hellgate Developer Flagship on Gamasutra has word that a Flagship rep has confirmed that "staff at both the Flagship development team as well as online services subsidiary Ping0 were let go." They also report contact from "source close to Flagship" that the company has been "going through internal turbulence." Now for the part that's less clear, in what may or may not be related news: Hellgate Guru has a report based on a translation of a Korean news story saying that Korean operator of Hellgate: London, HanbitSoft, claims co-ownership of the Intellectual Properly for the game, and is looking to take full control of the IP to "properly manage and develop Hellgate: London into a good game with proper content." Their report quotes HanbitSoft's statement on their reasoning: "It is hard for us to accept Flagship Studios’ requests for continued support in capital and funding any longer and because Flagship was being difficult." They also have a response to the story from Flagship Studios calling the story an "outright lie," except they don't appear to be refuting the accuracy of the Korean news story, but rather HanbitSoft's rights to take over the IP, seemingly indicating that such an attempt may actually be underway. According to Flagship:

This story is an outright lie. We have no idea where they are getting their information from and have asked legal counsel to pursue the issue. We are mystified by Hanbitsoft’s conclusions and any attempt to take over the IP will be met with a strong and swift response, to “illegally take over the IP”. All right title and interest in Hellgate; London resides in Flagship Financing, LLC a wholly-owned subsidiary of Flagship Studios. We are outraged that Hanbitsoft would attempt to completely tarnish the reputation of its most vital developer. Hanbitsoft’s new management clearly does not understand the terms of its relationship with Flagship.