Jeff and Annie Strain Sue NetEase for $900M, Alleging Fraud Misrepresentation to Investors

Jeff Strain, co-founder of ArenaNet and co-creator of State of Decay, along with his wife Annie Strain, have initiated a $900 million lawsuit against NetEase, the creators of Marvel Rivals. The lawsuit, filed in January in the civil district court for the parish of Orleans in Louisiana and later moved to federal court, alleges that NetEase was responsible for spreading rumors of fraud against the Strains and their company, Prytania Media Group, leading to the devaluation and eventual closure of their studio.

The amended complaint, as reported by IGN, begins with a strong accusation: "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 complaint details a complex narrative that leaves many questions unanswered from the previous year when Prytania Media's subsidiaries began to shut down unexpectedly.

According to the Strains, NetEase initially invested in one of Prytania's subsidiaries, Crop Circle Games, acquiring a 25% stake and placing Han Chenglin on the company board, alongside Jeff and Annie Strain. Initially, the relationship was positive, but tensions arose as NetEase expressed concerns about compliance with U.S. laws on foreign investment. The complaint mentions an email from NetEase requesting that their investment remain "low profile" to avoid scrutiny from The Committee on Foreign Investment in the United States (CFIUS), and suggested opening branches in Canada or Ireland to facilitate their investment.

The complaint further alleges that NetEase wanted to keep their ties to the Chinese Communist Party confidential from the U.S. government, citing Tencent's designation as a "Chinese military company" and reports of NetEase CEO Ding Lei using the threat of CCP retaliation against Activision Blizzard in 2023. The Strains also claim that Lei was in the process of immigrating to the U.S. and purchasing a $29 million Bel-Air mansion from Elon Musk, expressing concern that publicizing NetEase's investments could jeopardize his immigration.

As the Strains continued to question NetEase about regulatory compliance, their relationship deteriorated. Financial difficulties emerged, leading Crop Circle Games to lay off and furlough staff in early February 2024. The complaint states that on February 22, Jeff Strain received a text from a managing director of a venture firm invested in Prytania, alleging fraud and misuse of funds at Crop Circle Games. The Strains traced these rumors back to NetEase, with Han Chenglin admitting in a March board meeting that he was surprised at the company's rapid depletion of funds, suggesting this was the source of the rumor.

Following this, other investors began withdrawing funding from Prytania, and the company struggled to find new investors. The complaint notes that Prytania and its subsidiaries became "worth nearly nothing," down from an estimated $344 million, leading to the closure of Crop Circle Games at the end of March.

In April, Annie Strain published a letter on the company website attributing the company's struggles to the industry's economic downturn and difficulty in securing funding. She also mentioned an alleged article by Kotaku reporter Ethan Gach that she claimed would have disclosed 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 employee leaks to the press as the reason, without mentioning NetEase or the fraud allegations.

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

In response, NetEase issued a statement to Polygon, denying the allegations and stating their commitment to conducting business with integrity. They expressed confidence that the legal process would vindicate their position and reveal the true reasons behind the demise of the Strains' studios.