Jeff and Annie Strain Sue NetEase for $900 Million, Alleging It Erroneously Told Investors They Committed Fraud

Jeff Strain, the co-founder of ArenaNet and co-creator of State of Decay, along with his wife Annie Strain, are embroiled in a high-stakes legal battle with NetEase, the creators of Marvel Rivals. The couple has filed a lawsuit in the civil district court for the parish of Orleans in Louisiana, which has since been moved to federal court, seeking $900 million in damages. They allege that NetEase's actions led to the devaluation and eventual closure of their studio by spreading rumors of fraud among investors related to their latest venture, Prytania Media Group.

The Strains' complaint begins with a strong statement: "This case is about the destruction of the careers of two gaming industry veterans and their company by a Chinese entity seeking to avoid compliance with United States law." The narrative they present in the lawsuit is intricate and attempts to shed light on the sudden closures of Prytania Media's subsidiaries last year.

Initially, NetEase invested in one of Prytania's subsidiaries, Crop Circle Games, securing a 25% stake and placing Han Chenglin on the board alongside Jeff and Annie Strain. The relationship reportedly started on a positive note but deteriorated over time due to concerns about compliance with U.S. laws on foreign investment. The Strains claim they were pressured to keep the investment "low profile" and were suggested to open branches in Canada or Ireland to facilitate NetEase's investment without attracting scrutiny from The Committee on Foreign Investment in the United States (CFIUS).

The complaint also delves into NetEase's alleged connections to the Chinese Community Party, suggesting a motive to keep these ties hidden from the U.S. government. It references Tencent's classification as a "Chinese military company" by the U.S. and reports of NetEase CEO Ding Lei using the threat of CCP retaliation against Activision Blizzard in 2023.

Furthermore, the Strains allege that Ding Lei was in the process of immigrating to the U.S., purchasing a $29 million Bel-Air mansion from Elon Musk in 2020, and expressed concern that publicizing NetEase's investments could jeopardize his immigration.

As tensions escalated and Prytania Media faced financial difficulties, Crop Circle Games laid off and furloughed staff in early February 2024. The Strains claim that on February 22, Jeff Strain received a text from a venture firm's managing director accusing Crop Circle Games of fraud and misuse of funds, which they traced back to NetEase. In a subsequent board meeting, Han Chenglin allegedly expressed surprise at the company's rapid depletion of funds, which the Strains believe fueled the fraud rumors.

Following these events, other investors withdrew their funding, and Prytania Media could not secure new investments, leading to a drastic devaluation from an estimated $344 million to "nearly nothing." By the end of March last year, Crop Circle Games was completely shut down.

In April, Annie Strain published a letter on the company website attributing the company's struggles to the industry's economic downturn and difficulties in securing funding. She also mentioned an unpublished article by Kotaku reporter Ethan Gach, which she claimed would have revealed her personal health struggles without her consent. The letter was soon removed, and Kotaku did not publish the article. A week later, Prytania subsidiary Possibility Space closed, with Jeff Strain citing leaks to the press as the reason, without mentioning NetEase or fraud allegations.

The Strains are suing NetEase for defamation, unfair trade practices, tortious interference with business relations, and negligence, seeking damages exceeding $900 million, triple their company's prior valuation.

In response, NetEase issued a statement to Polygon, denying the allegations and asserting their commitment to integrity:

The allegations by Prytania Media and its founders Annie and Jeff Strain are wholly without merit, and we emphatically deny and will vigorously defend ourselves against them. Our record as a global gaming company speaks for itself, and we remain committed to conducting business with integrity. We are confident that the legal process will vindicate our position and shed light on the real reasons behind the demise of the Strains’ studios.