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

Jeff Strain and Annie Strain, renowned figures in the gaming industry and co-founders of ArenaNet and creators of State of Decay, have initiated a significant legal battle against NetEase, the developer behind Marvel Rivals. The couple, along with their company Prytania Media Group, are suing NetEase for $900 million, accusing the Chinese gaming giant of orchestrating a campaign of rumors that 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, paints a grim picture of corporate misconduct and international tensions. According to the amended complaint reviewed by IGN, the Strains allege that NetEase's actions led to "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 provided by the Strains in their complaint begins with NetEase's early investment in one of Prytania's subsidiaries, Crop Circle Games, where NetEase acquired a 25% stake and placed Han Chenglin on the board alongside Jeff and Annie Strain. Initially, the partnership appeared promising, but tensions arose over time due to NetEase's apparent concerns about compliance with U.S. laws on foreign investments. The complaint details how NetEase allegedly suggested keeping their investment "low profile" and proposed establishing branches in Canada or Ireland to circumvent regulations enforced by The Committee on Foreign Investment in the United States (CFIUS).

The Strains further allege that NetEase's ties to the Chinese Communist Party (CCP) played a significant role in their business dealings. They point to Tencent's classification 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. The complaint also mentions Lei's reported immigration to the U.S. and his purchase of a $29 million Bel-Air mansion from Elon Musk, suggesting that Lei feared immigration complications if NetEase's investments became public.

As the Strains continued to press NetEase on regulatory compliance, their relationship deteriorated. Financial difficulties emerged, culminating in layoffs and furloughs at Crop Circle Games in early February 2024. The situation escalated when Jeff Strain received a text message from a venture firm director, accusing Crop Circle Games of fraud and misuse of funds. The Strains traced these rumors back to NetEase, with Han Chenglin allegedly admitting in a board meeting that he had expressed surprise at the company's rapid depletion of funds.

Following these allegations, other investors withdrew their funding from Prytania, and the company struggled to secure new investments. This led to a drastic devaluation of Prytania and its subsidiaries, once valued at $344 million, to nearly nothing. Crop Circle Games 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 the inability to secure funding. She also mentioned a purported Kotaku article that she claimed would have disclosed her personal health issues without her consent. The letter was soon removed, and Kotaku did not publish 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 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 affirming their commitment to integrity in business. They expressed confidence that the legal process would clear their name and reveal the true reasons behind the collapse of the Strains' studios.