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 rumors among investors that the Strains had committed fraud.

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 destroying the careers of the Strains and their company. The complaint claims that NetEase 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 relationship between NetEase and the Strains was positive. However, tensions arose as NetEase expressed concerns about compliance with U.S. laws on foreign investment, reportedly urging the Strains to keep their investment discreet to avoid scrutiny from The Committee on Foreign Investment in the United States (CFIUS). The complaint further alleges that NetEase suggested opening branches in Canada or Ireland to facilitate their investment.

The Strains' complaint also delves into NetEase's alleged connections to the Chinese Communist Party, suggesting that the company wanted to keep these ties hidden from the U.S. government. They reference 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 claim that Lei was in the process of immigrating to the U.S. and purchasing a $29 million Bel-Air mansion from Elon Musk in 2020, and was concerned that publicizing NetEase's investments could jeopardize his immigration.

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 allege that on February 22, Jeff Strain received a text from a venture firm's managing director accusing Crop Circle Games of fraud and misuse of funds, rumors they traced back to NetEase. In a March board meeting, Han Chenglin reportedly expressed surprise at the company's rapid depletion of funds, which the Strains believe sparked the rumors.

Following these allegations, other investors withdrew funding from Prytania, and the company struggled to attract new investors. By the end of March, Prytania's value plummeted from an estimated $344 million to nearly nothing, leading to the 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 funding issues. She also mentioned an alleged article by Kotaku reporter Ethan Gach that she claimed would have disclosed her personal health struggles 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 fraud allegations.

The Strains are suing NetEase for defamation, unfair trade practices, tortious interference with business relations, and negligence, seeking damages exceeding $900 million, triple their company's prior valuation.

NetEase responded to the lawsuit with a statement to Polygon, denying the allegations and affirming their commitment to integrity. They expressed confidence that the legal process would vindicate their position and reveal the true reasons behind the Strains' studios' demise.