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And the Walrdier is not a wraith, it's an organism made of nanomachines.
Old insane asylum gets opened up in Colorado called Mt. Massive Asylum after WW2, named after the real world mountain range. Gets shut down 6 years later after there are several casualities as a result of multiple patients killing each other and staff, then is later bought by the Murkoff Corporation in 2008. At this point, Murkoff already has a really shady history of exploiting human life and welfare to gain profits, but could never sued or anything because anything shady they did wasn't on 'American soil', until now.
Fast foward to 2014, Murkoff launches Project Walrider, which involves using a hypnosis technique similar to the Ludovico technique seen in A Clockwork Orange , called the Morphogenic Engine, in which patients at the asylum are restrained to a chair with an appuratus attached to their head forcing their eyes open while they watch what is assumed to be a constantly-changing rorscrach pattern on the screen, forcing horrifying images into the mind of the individual watching.
Although most test subjects' minds are mentally destroyed and lesions and tumors grow on their skin as a result of the Morphogenic Engine, there was one test subject that survived the tests and was a suitable candiate for the next stage of Project Walrider; Billy Hope. Using the therapy from the Morphogenic Engine, Billy's mind was free from the restraints that came with a regular human mind, and was now able to grow nanobots inside of his body as a result with help from the scientists and technicians at Murkoff.
However, despite this, many patients' lives were lost as a result, and understanding how horrible Murkoff was for doing this, one technician, Waylon Park, sends an email to private newsreporter Miles Upshur to look around the asylum himself and expose what Murkoff is doing. Waylon, however, is caught, and about to be turned into a Variant himself, but is 'saved' by the manifestion of Billy's nanobots, referred to as 'The Walrider'.
Waylon must now escape the Asylum, with his only weapon being a video camera to look into dark places with night vision and record things. Along the way, he meets Variants such as Frank Manera, a cannibal wielding a circular saw blade, Dennis, a variant with mulitple-personality disorder, and Eddie 'The Groom' Gluskin, a man obsessed with wanting to marry a beautiful woman, but resorts to massacring as many man patients' genitals as possible instead since there are no women in the game for him.
Waylon manages to escape the facility and leaves the grounds using a car parked in the front gate, while being pursued by the Walrider the whole time. After an unknown amount of time later, Waylon meets with an unknown man (presumably of Australian descent) telling him that if he does publish what he saw at Mt. Massive on the internet, Murkoff may come after him and his family. Despite some hesitation knowing what he's risking here, Waylon publishes his video to the internet and the story comes to a close.
Private reporter Miles Upshur recieves an email from someone who calls himself a 'whistleblower' telling him that Murkoff Corp. has been doing some really inhumane things to the patients at the Mt. Massive Asylum. Carrying a video camera with him to the asylum, Miles is determined to record footage of whatever's going on there and expose the truth.
Once inside, he finds himself thrown through a window and constantly terrorised by the behemoth inmate with PTSD, Chris Walker, occasional support from the delusional priest Father Martin, who refers to Miles as a apostle, being stalked by a pair of naked cannibalistic twins wielding machetes and clubs, and the self-proclaimed doctor Richard Trager, who severs two of Miles' fingers with a giant pair of scissors.
After finally reaching the underground lab (the starting location for Whistleblower) where Billy Hope is being held, Miles finds himself on the run from the Walrider, who is defending its host, Billy, from Miles' efforts to turn off his life support and kill him. Succeeding, Billy dies, but the Walrider enters Miles' body and causes him to fall from a height that breaks one of his legs.
As he limps out of the facility, he is cornered by Murkoff agents who open fire on him, in an effort to destroy anyone outside of Murkoff who knew about Project Walrider and could tell people about it. As he dies, the screen goes black as the Walrider possesses Miles' dead body and kills the agents who just shot him dead.
The Walrider using Miles' body can be seen at the end of the Whistleblower DLC leaving the asylum just as Waylon is about to leave using Miles' car.