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 lawsuit claims 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 legal action, initially filed in January in the civil district court for the parish of Orleans in Louisiana and later transferred to federal court, accuses NetEase of sabotaging the careers of the Strains and their company. The complaint alleges that NetEase, a Chinese entity, sought to circumvent U.S. laws.

According to the Strains, 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 soured when NetEase expressed concerns about compliance with U.S. foreign investment laws, allegedly pressuring the Strains to keep their investment under wraps and suggesting the establishment of 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 delves into NetEase's alleged connections to the Chinese Communist Party, claiming the company wanted 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 that NetEase CEO Ding Lei used the threat of CCP retaliation against Activision Blizzard in 2023.

The Strains also allege that Lei was concerned about his immigration to the U.S., where he reportedly purchased a $29 million Bel-Air mansion from Elon Musk in 2020, and feared that publicizing NetEase's investments could jeopardize his status.

As the Strains continued to question NetEase about regulatory compliance, their relationship deteriorated. Financial troubles emerged, leading Crop Circle Games to lay off and furlough staff in early February 2024. The Strains claim that on February 22, Jeff Strain received a text from a managing director of one of Prytania's venture investors, alleging fraud and misuse of funds at Crop Circle Games, with the rumors traced back to NetEase. In a subsequent board meeting, Han Chenglin reportedly admitted to expressing surprise at the company's rapid depletion of funds, suggesting this as the source of the rumors.

Following these allegations, other investors withdrew their funding from Prytania, and the company struggled to secure new investments. By the end of March last year, Prytania Media and its subsidiaries were nearly valueless, down from an estimated $344 million. Crop Circle Games was shut down entirely.

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 upcoming article by Kotaku reporter Ethan Gach that 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. Neither NetEase nor the fraud allegations were mentioned publicly at that time.

The Strains and Prytania Media are now 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 in business. They expressed confidence that the legal process would vindicate their position and reveal the true reasons behind the collapse of the Strains' studios.