Jeff and Annie Strain Sue NetEase for $900M Over Fraud Allegations

Jeff Strain, a co-founder of ArenaNet and co-creator of State of Decay, along with his wife Annie Strain, have filed a $900 million lawsuit against NetEase, the creators of Marvel Rivals. The Strains allege that NetEase spread false rumors about fraud within their most recent venture, Prytania Media Group, leading 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 "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 Strains' complaint details their initial positive relationship with NetEase, which invested in Prytania's subsidiary, Crop Circle Games, securing a 25% stake and a board seat for Han Chenglin. However, tensions arose when NetEase allegedly expressed concerns about compliance with U.S. laws on foreign investment, suggesting that the investment should be kept "low profile" to avoid scrutiny from The Committee on Foreign Investment in the United States (CFIUS). They were also reportedly asked to establish branches in Canada or Ireland to facilitate NetEase's investments.

The complaint further alleges that NetEase wanted to keep its ties to the Chinese Communist Party confidential from the U.S. government, citing Tencent's designation as a "Chinese military company" and reports of NetEase CEO Ding Lei's alleged use of CCP retaliation threats against Activision Blizzard. The Strains claim that Lei was in the process of immigrating to the U.S. and feared that publicizing NetEase's investments could jeopardize this.

As the Strains continued to question NetEase about regulatory compliance, their relationship deteriorated. Amid financial difficulties, Crop Circle Games began layoffs and furloughs in early February 2024. On February 22, Jeff Strain received a text from a venture firm's managing director alleging fraud and misuse of funds at Crop Circle Games, which the Strains traced back to NetEase. In a March board meeting, Han Chenglin reportedly expressed surprise at the company's rapid financial decline, suggesting this as the origin of the rumors.

Following these events, other investors withdrew funding from Prytania, and the company struggled to find new investors. Prytania's value plummeted from an estimated $344 million to nearly nothing, leading to the closure of Crop Circle Games at the end of March.

In April, Annie Strain published a letter on the company website attributing the company's struggles to the industry's economic downturn and funding issues. She also mentioned a potential Kotaku article about her personal health struggles, which was never published. A week later, Prytania subsidiary Possibility Space closed, with Jeff Strain citing employee leaks to the press as the reason, 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, triple their company's prior valuation.

In response, NetEase stated to Polygon that the allegations are "wholly without merit," and they will "vigorously defend" themselves, asserting their commitment to integrity and confidence that the legal process will clarify the true reasons behind the Strains' studios' demise.