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

Jeff Strain and Annie Strain, co-founders of ArenaNet and co-creators of State of Decay, have filed a $900 million lawsuit against NetEase, the creators of Marvel Rivals. The lawsuit alleges that NetEase spread damaging rumors about fraud within their latest venture, Prytania Media Group, leading to the devaluation and eventual closure of their studio.

The legal action, 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 orchestrating the downfall of the Strains' careers and their company. According to the complaint, NetEase's actions were motivated by a desire to circumvent U.S. laws on foreign investment.

The complaint details how 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. Initially, the partnership was positive, but tensions arose as NetEase expressed concerns about complying with U.S. regulations, including those from the Committee on Foreign Investment in the United States (CFIUS). The Strains allege that NetEase suggested keeping the investment low-profile and even proposed opening branches in Canada or Ireland to facilitate their investment.

The complaint further alleges NetEase's ties to the Chinese Communist Party (CCP), claiming the company wished to keep these connections hidden from U.S. authorities. It references Tencent's classification as a "Chinese military company" by the U.S. government and reports of NetEase CEO Ding Lei using the threat of CCP retaliation against Activision Blizzard in past negotiations.

The Strains also mention that Lei was in the process of immigrating to the U.S., purchasing a $29 million Bel-Air mansion from Elon Musk, and expressed fears that publicizing NetEase's investments could jeopardize his immigration status.

As tensions escalated, the Strains continued to press for regulatory compliance, leading to a breakdown in their relationship with NetEase. In February 2024, Crop Circle Games faced financial difficulties, resulting in layoffs and furloughs. The Strains allege that around this time, rumors of fraud and misuse of funds at Crop Circle Games began circulating, which they traced back to NetEase. These rumors reportedly led other investors to withdraw funding, causing Prytania Media's value to plummet from an estimated $344 million to nearly nothing, ultimately leading to the closure of Crop Circle Games in March.

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 referenced an unwritten article by Kotaku reporter Ethan Gach about her personal health issues. 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. Neither NetEase nor the fraud allegations were mentioned at the time.

The Strains are now 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 issued a statement to Polygon, denying the allegations and vowing to defend themselves vigorously. They emphasized their commitment to integrity and confidence that the legal process would reveal the true reasons behind the Strains' studios' demise.