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

Jeff Strain, 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 Strains have filed a lawsuit seeking $900 million, alleging that NetEase's actions led to the devaluation and eventual closure of their studio, Prytania Media Group. The crux of their claim is that NetEase spread false rumors among investors, accusing the Strains of fraud, which severely damaged their business.

The lawsuit, initially filed in the civil district court for the parish of Orleans in Louisiana and later moved to federal court, paints a picture of a deliberate campaign by NetEase to undermine the Strains. The amended 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 provided by the Strains is intricate and leaves many questions unanswered from the previous year when Prytania Media's subsidiaries began to shut down unexpectedly. According to their account, NetEase initially invested in one of Prytania's subsidiaries, Crop Circle Games, acquiring a 25% stake and placing Han Chenglin on the board alongside Jeff and Annie Strain.

Initially, the partnership was described as positive. However, tensions arose as NetEase expressed concerns about compliance with U.S. laws governing foreign investments. The complaint cites an email from NetEase requesting that the investment remain "low profile" to evade scrutiny from The Committee on Foreign Investment in the United States (CFIUS). NetEase allegedly suggested opening branches in Canada or Ireland to facilitate their investment without drawing attention.

The complaint also delves into NetEase's purported connections to the Chinese Communist Party (CCP), suggesting that the company wished to keep these ties hidden from the U.S. government. It references Tencent's classification as a "Chinese military company" by the U.S. government and reports that NetEase CEO Ding Lei allegedly threatened Activision Blizzard with CCP retaliation during licensing negotiations in 2023.

Further complicating matters, the Strains claim that Ding Lei was in the process of immigrating to the U.S. and had purchased a $29 million Bel-Air mansion from Elon Musk in 2020. They allege that Lei feared his immigration would be jeopardized if NetEase's investments became public knowledge.

As the Strains continued to question NetEase about regulatory compliance, their relationship deteriorated. Financial difficulties surfaced, and in early February 2024, Crop Circle Games laid off and furloughed staff, causing internal confusion and anger.

The turning point came on February 22, 2024, when 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. The Strains traced the rumor back to NetEase, with Han Chenglin admitting in a March board meeting that he had expressed surprise at the company's rapid depletion of funds, which they believe sparked the rumor.

Following this, other investors withdrew their funding, and Prytania was unable to secure new investments. By the end of March, Prytania's valuation plummeted from an estimated $344 million to "nearly nothing," leading to the complete closure of Crop Circle Games.

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 alleged forthcoming 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 never published the article. A week later, Prytania subsidiary Possibility Space closed, with Jeff Strain citing employee leaks to the press as the reason, though neither NetEase nor the fraud allegations were mentioned at the time.

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 asserting their commitment to integrity. They expressed confidence that the legal process would vindicate their position and reveal the true causes of the Strains' studios' downfall.