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

Jeff Strain, 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's actions led to the devaluation and eventual closure of their studio by spreading rumors among investors that they had committed fraud with their latest venture, Prytania Media Group.

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 causing "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."

According to the complaint, NetEase had invested early 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 relationship was described as positive. However, tensions arose when NetEase expressed concerns about compliance with U.S. laws on foreign investment, suggesting that the Strains keep their investment "low profile" to evade 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 Strains' complaint further alleges that NetEase wanted to conceal its ties to the Chinese Communist Party from the U.S. government. They reference Tencent's classification as a "Chinese military company" by the U.S. government and reports that NetEase CEO Ding Lei used the threat of CCP retaliation against Activision Blizzard in 2023.

Additionally, the Strains claim that Ding Lei was in the process of immigrating to the U.S. into a $29 million Bel-Air mansion previously owned by Elon Musk, and feared that publicizing NetEase's investments could jeopardize this move.

The relationship between the Strains and NetEase deteriorated as the Strains continued to question and push for regulatory compliance. Financial difficulties emerged, leading Crop Circle Games to lay off and furlough staff in early February 2024. On February 22, Jeff Strain received a text from a venture firm managing director alleging fraud and misuse of funds at Crop Circle Games, which the Strains traced back to NetEase. During a March board meeting, Han Chenglin's comments about the company's rapid depletion of funds were cited as the source of the rumors.

Following these incidents, other investors withdrew funding from Prytania, and the company failed to secure new investments. By the end of March, Crop Circle Games was shut down, and Prytania's value plummeted from an estimated $344 million to nearly nothing.

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 an alleged article by Kotaku reporter Ethan Gach that she claimed would expose her personal health issues without her consent. The letter was later removed, and Kotaku did not publish the article. A week later, Prytania subsidiary Possibility Space closed, with Jeff Strain citing leaks to the press as the reason, without mentioning NetEase or allegations of fraud.

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.

NetEase responded to the lawsuit with a statement to Polygon, denying the allegations and emphasizing their commitment to integrity. They expressed confidence that the legal process would clarify the true reasons behind the closure of the Strains' studios.