This is really weird. Ken's statement is basically that he wants to downsize for creative reasons; which would be a baffling reason to fire that many people in any day and age but in the current climate? Those people aren't exactly just going to walk in to another booming developer (some will, perhaps).
So, either that's BS and there's more too this... or an incredibly tactless decision was just made.
I absolutely agree. To use an music analogy. This is a bit like when Roger Waters decided that he wanted to go off and do his own solo thing, and basically fired every other member of Pink Floyd after the recording of The Final Cut. Now, because of how ownership to bands works, the other members of Pink Floyd were able to sue Waters to get the name of the band back (though Roger Waters retained all the imagery and iconography from The Wall tour, as well as the Big Inflatable Pig from the Animals tour). Thus, we were able to get two more Pink Floyd albums that were decent (A Momentary Lapse of Reason) to really good (The Division Bell).
However, due to how the game industry works, I doubt a similar lawsuit could happen here. It'd be nice if the displaced employees could sue to get the company back, while Levine goes off to do his own smaller project elsewhere, but oh well. That said, if the laid off employees want to start their own company, I think the name "Sane Games" is available.