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

Jeff Strain, a 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 was responsible for the devaluation and subsequent closure of their studio by spreading false rumors among investors that they had committed fraud with their latest venture, Prytania Media Group.

The lawsuit, initially filed in January in the civil district court for the parish of Orleans in Louisiana and later transferred to federal court, opens with a strong accusation: "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 complaint outlines a detailed narrative that began when NetEase invested early 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 was positive, but tensions arose over time as NetEase expressed concerns about compliance with U.S. laws on foreign investment. The Strains claim that NetEase requested them to keep the investment "low profile" to avoid scrutiny from The Committee on Foreign Investment in the United States (CFIUS) and suggested opening branches in Canada or Ireland to facilitate easier investment.

The complaint further delves into NetEase's alleged connections to the Chinese Communist Party (CCP), suggesting that the company wished to keep these ties confidential 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 allegedly threatened Activision Blizzard with CCP retaliation in 2023.

The Strains also mention that Lei was reportedly in the process of immigrating to the United States and purchasing a $29 million Bel-Air mansion from Elon Musk in 2020. They claim Lei was concerned that publicizing NetEase's investments could jeopardize his immigration status.

As the Strains continued to question NetEase about regulatory compliance, their relationship deteriorated. In early February 2024, Crop Circle Games began to face 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 that he was surprised at the company's rapid financial decline.

Following these allegations, other investors withdrew their funding from Prytania, and the company was unable to secure new investments. By the end of March last year, Prytania Media and its subsidiaries were nearly valueless, having once been valued at $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 referenced an alleged upcoming 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 never published the article. A week later, Prytania subsidiary Possibility Space closed, with Jeff Strain citing leaks to the press as the reason, without mentioning NetEase or the fraud allegations.

The Strains and Prytania Media 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 provided a statement to Polygon, denying the allegations and affirming their commitment to conducting business with integrity. They expressed confidence that the legal process would vindicate their position and reveal the true reasons behind the collapse of the Strains' studios.