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's actions led to the devaluation and eventual closure of their studio, Prytania Media Group, by spreading rumors of fraud among investors.

The lawsuit, 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 causing "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."

According to the complaint, 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 started positively but deteriorated over time due to NetEase's concerns about compliance with U.S. laws on foreign investment. The Strains claim that NetEase requested them to maintain a "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 investment.

The complaint further alleges that NetEase has ties to the Chinese Communist Party and wanted to keep these connections hidden from the U.S. government. They cite 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 Ding Lei was in the process of immigrating to the U.S. and purchasing a $29 million Bel-Air mansion from Elon Musk in 2020, expressing concerns that publicizing NetEase's investments could jeopardize his immigration.

As the Strains continued to question NetEase about regulatory compliance, their relationship soured. In February 2024, Crop Circle Games faced financial difficulties, leading to layoffs and furloughs. 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, which the Strains traced back to NetEase. In a March board meeting, Han Chenglin reportedly expressed surprise at the company's rapid depletion of funds, suggesting this as the source of the rumor.

Following this, other investors reportedly withdrew funding from Prytania, and the company struggled to secure new investments. By the end of March, Prytania's valuation 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 inability to secure funding. She also mentioned an alleged article by Kotaku reporter Ethan Gach that would have disclosed her personal health struggles without her consent. The letter was later removed, and Kotaku did not publish the article. A week later, Prytania subsidiary Possibility Space shut down, with Jeff Strain citing employee leaks to the press as the cause, 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, which is triple their company's prior valuation.

In response, NetEase stated to Polygon:

The allegations by Prytania Media and its founders Annie and Jeff Strain are wholly without merit, and we emphatically deny and will vigorously defend ourselves against them. Our record as a global gaming company speaks for itself, and we remain committed to conducting business with integrity. We are confident that the legal process will vindicate our position and shed light on the real reasons behind the demise of the Strains’ studios.