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 filed a $900 million lawsuit against NetEase, the creator of Marvel Rivals. The lawsuit alleges that NetEase's actions led to the devaluation and closure of their studio, Prytania Media Group, by spreading false rumors among investors that the Strains had committed fraud.

The case, initially filed in January in the civil district court for the parish of Orleans in Louisiana and later moved to federal court, claims that NetEase's actions destroyed the careers of two gaming industry veterans. According to the amended complaint seen by IGN, NetEase initially invested in Prytania's subsidiary, Crop Circle Games, acquiring a 25% stake and placing Han Chenglin on the board alongside Jeff and Annie Strain.

The relationship reportedly started positively but deteriorated over time. The Strains claim that NetEase expressed concerns about compliance with U.S. laws on foreign investment, suggesting that they keep the investment "low profile" to avoid scrutiny from The Committee on Foreign Investment in the United States (CFIUS). NetEase allegedly asked the Strains to establish branches in Canada or Ireland to facilitate their investment.

The complaint also highlights NetEase's alleged ties to the Chinese Communist Party, suggesting the company wanted to keep these connections confidential. It references Tencent's designation as a "Chinese military company" by the U.S. government and reports that NetEase CEO Ding Lei threatened Activision Blizzard with CCP retaliation over licensing issues in 2023.

The Strains allege that Ding Lei was concerned about his immigration to the U.S. and his purchase of a $29 million Bel-Air mansion from Elon Musk in 2020 being jeopardized if NetEase's investments became public.

As the Strains continued to press for regulatory compliance, their relationship with NetEase soured. In early February 2024, Crop Circle Games began laying off and furloughing staff amid internal confusion and anger. On February 22, Jeff Strain received a text from a venture firm managing director alleging fraud and misuse of funds at Crop Circle Games, which the Strains traced back to NetEase. In a March board meeting, Han Chenglin acknowledged his surprise at the company's rapid depletion of funds, suggesting this was the source of the rumor.

Following these incidents, other investors withdrew funding from Prytania, and the company could not secure new investors. As a result, Prytania and its subsidiaries were nearly worthless by the end of March 2024, having once been valued at $344 million. Crop Circle Games shut down entirely 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 funding issues. 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 never published the article. A week later, Prytania subsidiary Possibility Space closed, with Jeff Strain blaming leaks to the press, but neither NetEase nor fraud allegations were mentioned at the time.

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, triple their company's prior valuation.

In response, NetEase stated to Polygon:

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.