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

Jeff Strain and Annie Strain, co-founder and co-creator of ArenaNet and State of Decay respectively, 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 asserts NetEase's actions were a calculated attempt to circumvent U.S. law. The Strains' narrative details a complex series of events leading to Prytania's downfall. NetEase, having invested 25% in Prytania's subsidiary, Crop Circle Games, and holding a board seat, initially fostered a positive relationship. However, this soured as NetEase expressed concerns about compliance with U.S. foreign investment regulations, even suggesting the Strains maintain a "low profile" to avoid CFIUS scrutiny and proposing relocating operations to Canada or Ireland to facilitate investment.

The complaint highlights NetEase's alleged ties to the Chinese Communist Party (CCP), suggesting a motive to conceal these connections from the U.S. government. It cites the U.S. government's designation of Tencent as a "Chinese military company" and reports of NetEase CEO Ding Lei allegedly leveraging CCP retaliation threats against Activision Blizzard in 2023. The Strains also allege Lei, reportedly purchasing a $29 million Bel-Air mansion from Elon Musk in 2020, expressed concerns about his U.S. immigration status being jeopardized by publicized investments.

As the Strains pressed for regulatory compliance, their relationship with NetEase deteriorated. Crop Circle Games experienced financial difficulties, leading to layoffs and furloughs in early February 2024. The Strains claim that on February 22nd, Jeff Strain received a text alleging Crop Circle Games was involved in fraud, a rumor they traced back to NetEase. In a March board meeting, Han Chenglin, NetEase's representative, seemingly confirmed the rumor's origin.

Following this, investors withdrew funding from Prytania, and the company failed to secure new investments. Prytania Media and its subsidiaries, once valued at $344 million, became virtually worthless. Crop Circle Games closed in March 2024. In April, Annie Strain published a letter on the company website attributing the closure to economic downturn and funding issues, also mentioning an un-published Kotaku article. This letter was later removed. Possibility Space, another Prytania subsidiary, closed shortly after.

Jeff and Annie Strain, along with Prytania Media, are suing NetEase for defamation, unfair trade practices, tortious interference, and negligence, seeking over $900 million in damages. NetEase denies the allegations, asserting their actions were above board and vowing to vigorously defend themselves.