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, originally filed in January in the civil district court for the parish of Orleans in Louisiana and later moved to federal court, accuses NetEase of deliberately undermining the Strains' careers and company. According to the complaint, 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.

Initially, the relationship was positive, but tensions arose as NetEase expressed concerns about compliance with U.S. laws on foreign investments. The Strains claim they were pressured to keep the investment "low profile" and were suggested to open branches in Canada or Ireland to facilitate NetEase's investment without attracting regulatory scrutiny from The Committee on Foreign Investment in the United States (CFIUS).

The complaint also highlights NetEase's alleged connections to the Chinese Communist Party, suggesting that the company sought to conceal these ties 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 further allege that Ding Lei was concerned about his immigration to the U.S., which they claim he was pursuing by purchasing a $29 million Bel-Air mansion from Elon Musk in 2020. They assert that Lei feared his immigration process would be jeopardized if NetEase's investments were publicized.

As the Strains continued to push for regulatory compliance, their relationship with NetEase deteriorated. In early February 2024, Crop Circle Games faced financial difficulties, leading to layoffs and furloughs. 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 as the source of the rumor.

Following these allegations, other investors withdrew funding from Prytania, and the company struggled to attract new investments. By the end of March, Crop Circle Games was shuttered, 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 difficulties in securing funding. She also mentioned an alleged forthcoming Kotaku article by Ethan Gach that she claimed would disclose 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 affirming their commitment to integrity:

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.