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

Jeff Strain, co-founder of ArenaNet and co-creator of State of Decay, along with his wife Annie Strain, are embroiled in a high-stakes legal battle against NetEase, the creator of Marvel Rivals. The couple is suing the Chinese gaming giant for a staggering $900 million, alleging that NetEase's actions led to the devaluation and eventual closure of their studio, Prytania Media Group. The crux of their claim is that NetEase spread damaging rumors among investors, accusing the Strains of fraud with their latest venture.

The lawsuit, initially filed in January in the civil district court for the parish of Orleans in Louisiana and subsequently moved to federal court, accuses NetEase of orchestrating the downfall of the Strains' careers and their company. The complaint opens with a bold statement: "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 narrative presented in the complaint is intricate and leaves many questions unanswered about the sudden shutdown of Prytania Media's subsidiaries last year. According to the Strains, NetEase initially 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 partnership seemed promising. However, tensions arose as NetEase allegedly expressed concerns about compliance with U.S. foreign investment laws. The complaint cites an email from NetEase requesting the Strains to keep their investment "low profile" to circumvent regulations by The Committee on Foreign Investment in the United States (CFIUS). They were also purportedly advised to establish branches in Canada or Ireland to facilitate NetEase's investment.

A significant portion of the complaint delves into NetEase's alleged connections to the Chinese Communist Party (CCP), suggesting that the company sought to conceal these ties from the U.S. government. The document references Tencent's designation as a "Chinese military company" by the U.S. government and reports that NetEase CEO Ding Lei allegedly used the threat of CCP retaliation against Activision Blizzard in 2023 during licensing negotiations.

The Strains also 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. They allege that Lei was concerned about his immigration status being jeopardized if NetEase's investments were publicized.

As the Strains continued to question and push for regulatory compliance, their relationship with NetEase deteriorated. Concurrently, Crop Circle Games faced financial difficulties, leading to layoffs and furloughs in early February 2024. The complaint states that 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 these rumors back to NetEase, with Han Chenglin admitting in a March board meeting that he was surprised at the company's rapid depletion of funds, which they believe sparked the rumors.

Following this incident, other investors reportedly withdrew funding from Prytania, and the company struggled to secure new investments. The complaint asserts that Prytania Media and its subsidiaries were left "worth nearly nothing," despite once being valued at $344 million. Crop Circle Games was shut down entirely by the end of March last year.

In April, Annie Strain published a letter on the company website, attributing the company's struggles to the industry's economic downturn and funding challenges. 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 never published 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 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 issued a statement to Polygon, vehemently denying the allegations and asserting their commitment to integrity. They expressed confidence that the legal process would vindicate their position and reveal the true reasons behind the Strains' studios' collapse.