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

Jeff Strain, co-founder of ArenaNet and co-creator of State of Decay, along with his wife Annie Strain, are taking legal action against NetEase, the creator of Marvel Rivals, for a staggering $900 million. They allege that NetEase's actions led to the devaluation and eventual closure of their studio by spreading false rumors of fraud among investors related to their latest venture, Prytania Media Group.

The lawsuit, initially filed in January in the civil district court for the parish of Orleans in Louisiana and later moved to federal court, begins with a strong claim: "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 Strains' complaint paints a detailed picture of their ordeal, though it leaves some gaps in the events that led to the unexpected closure of Prytania Media's subsidiaries last year. According to the Strains, NetEase initially 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.

Initially, the relationship was described as positive. However, tensions arose when NetEase allegedly expressed concerns about compliance with U.S. laws on foreign investment. The Strains claim they received emails from NetEase asking to keep their investment discreet to avoid scrutiny from The Committee on Foreign Investment in the United States (CFIUS). They were also reportedly encouraged to establish branches in Canada or Ireland to facilitate NetEase's investments.

The complaint further delves into NetEase's alleged connections to the Chinese Community Party, suggesting that NetEase wanted to conceal these ties from the U.S. government. The Strains reference Tencent's designation as a "Chinese military company" by the U.S. government and reports that NetEase CEO Ding Lei allegedly used the threat of CCP retaliation against Activision Blizzard in 2023 during licensing negotiations.

Additionally, the Strains claim they were informed that Ding Lei was in the process of immigrating to the U.S. and purchasing a $29 million Bel-Air mansion from Elon Musk in 2020. They allege that Lei was concerned about his immigration status if NetEase's investments became public knowledge.

As the Strains continued to question NetEase about regulatory compliance, their relationship deteriorated. Concurrently, financial difficulties emerged at Crop Circle Games, leading to layoffs and furloughs in early February 2024. The Strains state that on February 22, Jeff Strain received a text from a managing director of a venture firm invested in Prytania, accusing Crop Circle Games of fraud and misuse of funds. They traced the rumors back to NetEase, with Han Chenglin allegedly admitting in a March board meeting that he was surprised by the company's rapid financial decline, which they believe sparked the rumors.

Following these events, other investors withdrew funding from Prytania, and the company was unable to secure new investments. The complaint asserts that Prytania Media and its subsidiaries were left "worth nearly nothing," despite once being valued at $344 million. Crop Circle Games was shut down at the end of March last year.

In April, Annie Strain published a letter on the company website attributing the company's struggles to the industry's economic downturn and funding challenges. She also mentioned an unverified article allegedly being written by Kotaku reporter Ethan Gach, which she claimed would have disclosed her personal health issues 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 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 previous valuation.

In response, NetEase issued a statement to Polygon, denying the allegations and expressing confidence that the legal process would vindicate their position and reveal the true reasons behind the collapse of the Strains' studios.