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 Strains allege that NetEase's actions led to the devaluation and eventual closure of their studio, Prytania Media Group, by spreading false rumors of fraud among investors.

The lawsuit, initially filed in January in the civil district court for the parish of Orleans in Louisiana and later moved to federal court, accuses NetEase of "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 Strains' complaint details their initial positive relationship with NetEase, which invested in their subsidiary, Crop Circle Games, taking a 25% share and placing Han Chenglin on the board. However, tensions arose as NetEase allegedly expressed concerns about compliance with U.S. laws on foreign investment, suggesting that the Strains keep the investment "low profile" and even proposing to open branches in Canada or Ireland to facilitate NetEase's investment without scrutiny from The Committee on Foreign Investment in the United States (CFIUS).

The complaint further alleges that NetEase has ties to the Chinese Communist Party, which the company wanted to keep confidential from the U.S. government. It references Tencent's designation as a "Chinese military company" by the U.S. government and reports of NetEase CEO Ding Lei allegedly 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 expressed concerns that publicizing NetEase's investments could jeopardize his immigration status, particularly after purchasing a $29 million Bel-Air mansion from Elon Musk in 2020.

As the Strains continued to question NetEase about regulatory compliance, their relationship deteriorated. In early February 2024, Crop Circle Games faced financial difficulties, leading to layoffs and furloughs. The situation escalated when Jeff Strain received a text from a venture firm's managing director on February 22, alleging fraud and misuse of funds at Crop Circle Games, which the Strains traced back to NetEase. In a March board meeting, Han Chenglin reportedly expressed surprise at the company's rapid depletion of funds, which the Strains believe fueled the rumors.

Following these allegations, other investors withdrew funding from Prytania, and the company struggled to secure new investments. By the end of March, Crop Circle Games was shut down, and Prytania's value plummeted from an estimated $344 million to nearly nothing.

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 later 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 fraud allegations.

The Strains 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 asserting 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 closure of the Strains' studios.