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

Jeff Strain and his wife Annie Strain, both well-known figures in the gaming industry for their roles in founding ArenaNet and co-creating State of Decay, have initiated a significant legal battle against NetEase, the creators of Marvel Rivals. The couple, along with their company Prytania Media Group, are seeking $900 million in damages, alleging that NetEase's actions led to the devaluation and eventual closure of their studio.

The lawsuit, initially filed in January in the civil district court for the parish of Orleans in Louisiana and later moved to federal court, accuses NetEase of spreading false rumors about the Strains committing fraud with Prytania Media Group. According to the amended complaint obtained by IGN, the case is framed as "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 details a once-positive relationship between NetEase and Prytania's subsidiary, Crop Circle Games, in which NetEase held a 25% stake and had a representative, Han Chenglin, on the board alongside Jeff and Annie Strain. However, tensions reportedly arose over compliance with U.S. laws on foreign investments. NetEase allegedly requested that their investment remain "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 Strains further allege that NetEase was concerned about revealing its ties to the Chinese Communist Party (CCP) and referenced Tencent's designation as a "Chinese military company" by the U.S. government, as well as reports of NetEase CEO Ding Lei using CCP retaliation threats in negotiations with Activision Blizzard. They also claim that Lei was worried about his immigration to the U.S. and his purchase of a $29 million Bel-Air mansion from Elon Musk being jeopardized if NetEase's investments became public.

As the relationship deteriorated, Crop Circle Games faced financial difficulties, leading to layoffs and furloughs in early February 2024. The Strains assert that on February 22, Jeff Strain received a text from a venture firm managing director accusing Crop Circle Games of fraud and misuse of funds, which they traced back to NetEase. Han Chenglin allegedly admitted to expressing surprise at the company's rapid financial decline during a board meeting, which the Strains believe sparked the damaging rumors.

Following these events, other investors reportedly withdrew funding from Prytania, and the company struggled to attract new investors. The complaint states that Prytania Media and its subsidiaries were devalued to "nearly nothing" from an estimated $344 million, leading to the closure of Crop Circle Games 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 difficulty in securing funding. She also mentioned a forthcoming Kotaku article that she claimed would have disclosed her personal health struggles without her consent, though the letter was later removed and the article never published. A week after the letter, Possibility Space, another Prytania subsidiary, closed, with Jeff Strain citing leaks to the press as the reason, without mentioning NetEase or 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, denying the allegations and asserting their commitment to integrity in business. They expressed confidence that the legal process would vindicate their position and reveal the true causes behind the closure of the Strains' studios.