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

Jeff Strain and Annie Strain, co-founders of ArenaNet and co-creator of State of Decay, are suing NetEase, the creator of Marvel Rivals, for $900 million. Their lawsuit alleges NetEase deliberately devalued and ultimately caused the closure of their studio, Prytania Media Group, by spreading false rumors of fraud to investors.

Filed initially in Louisiana state court and subsequently moved to federal court, the amended complaint accuses NetEase, a Chinese entity, of deliberately destroying the Strains' careers to avoid U.S. legal compliance. The complaint details a complex narrative surrounding Prytania Media's unexpected subsidiary closures. NetEase held a 25% stake in Crop Circle Games, a Prytania subsidiary, with a representative on the board. Initially, the relationship was positive. However, the Strains allege NetEase expressed concerns about U.S. foreign investment regulations, requesting a “low profile” investment to avoid CFIUS scrutiny and suggesting the establishment of branches in Canada or Ireland to facilitate investment.

A substantial portion of the complaint highlights NetEase's alleged ties to the Chinese Communist Party (CCP), suggesting a desire to maintain confidentiality from the U.S. government. This section cites 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 complaint further mentions Lei's purported U.S. immigration plans and concerns about jeopardizing this process through publicized investments.

The Strains claim their persistent questioning of regulatory compliance led to a deteriorating relationship with NetEase. Crop Circle Games experienced financial difficulties, leading to layoffs and furloughs in early February 2024. The complaint alleges that on February 22nd, Jeff Strain received a text message from a venture firm managing director stating Crop Circle Games was accused of fraud, a rumor allegedly originating from NetEase. A subsequent board meeting revealed that NetEase's board member, Han Chenglin, admitted to expressing surprise at the company's rapid depletion of funds, potentially the source of the rumor.

Following these events, investors withdrew funding from Prytania, hindering the company's ability to secure new investments. Prytania Media and its subsidiaries plummeted in value, from an estimated $344 million to near-worthlessness. Crop Circle Games closed in March 2024. In April, Annie Strain published a letter on the company website attributing the struggles to the economic downturn and funding difficulties, also mentioning an alleged, unpublished Kotaku article. This letter was later removed. Possibility Space, another Prytania subsidiary, subsequently closed, with Jeff Strain citing employee leaks to the press as the cause. NetEase and fraud allegations were not mentioned in this statement.

Jeff and Annie Strain, along with Prytania Media, are suing NetEase for defamation, unfair trade practices, tortious interference, and negligence, seeking damages exceeding $900 million—triple the company's previous valuation. NetEase denies the allegations, asserting they are without merit and vowing a vigorous defense.