Jeff and Annie Strain Sue NetEase for $900 Million, Alleging It Erroneously Told Investors They Committed Fraud

Jeff Strain, the co-founder of ArenaNet and co-creator of State of Decay, along with his wife Annie Strain, have filed a $900 million lawsuit against NetEase, the creators of Marvel Rivals. The Strains allege that NetEase spread rumors among investors accusing them of fraud, leading to the devaluation and eventual closure of their studio, 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, accuses NetEase of orchestrating the downfall of the Strains' careers and their company. The complaint suggests that NetEase, a Chinese entity, was attempting to circumvent U.S. laws.

The Strains' narrative begins with NetEase's early investment in Crop Circle Games, a subsidiary of Prytania Media, where NetEase acquired a 25% stake and placed 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. foreign investment laws. The complaint mentions an email from NetEase requesting to keep the investment "low profile" to avoid scrutiny from The Committee on Foreign Investment in the United States (CFIUS), and suggestions to open branches in Canada or Ireland to facilitate NetEase's investments.

The Strains also allege that NetEase has ties to the Chinese Communist Party (CCP), which the company wanted to keep confidential from the U.S. government. They cite Tencent's designation as a "Chinese military company" by the U.S. government and reports of NetEase CEO Ding Lei using the threat of CCP retaliation against Activision Blizzard in 2023.

Furthermore, the Strains claim that Ding Lei was in the process of immigrating to the U.S. and purchasing a $29 million Bel-Air mansion from Elon Musk, expressing concerns that his immigration could be jeopardized if NetEase's investments were publicized.

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. On February 22, Jeff Strain received a text from a managing director of a venture firm invested in Prytania, alleging fraud and misuse of funds at Crop Circle Games. The Strains traced the rumor back to NetEase, with Han Chenglin admitting in a March board meeting to being surprised at the company's rapid depletion of funds.

Following this, other investors withdrew their funding from Prytania, and the company struggled to attract 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 unwritten article by Kotaku reporter Ethan Gach that she claimed would have disclosed her personal health issues. 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, without mentioning NetEase or allegations of fraud.

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 stated to Polygon that the allegations by Prytania Media and the Strains are baseless and that they will vigorously defend themselves. They emphasized their commitment to integrity and expressed confidence that the legal process would clarify the true reasons behind the Strains' studios' demise.