Jeff and Annie Strain Sue NetEase for $900 Million, Alleging It Erroneously Told Investors They Committed Fraud

Jeff Strain and Annie Strain, co-founders of ArenaNet and co-creator of State of Decay, are suing NetEase, the creator of Marvel Rivals, for $900 million. Their lawsuit alleges NetEase deliberately devalued and ultimately caused the closure of their studio, Prytania Media Group, by spreading false rumors of fraud to investors.

Filed initially in Louisiana state court and subsequently moved to federal court, the amended complaint accuses NetEase, a Chinese entity, of intentionally destroying the Strains’ careers to avoid U.S. legal compliance. The complaint details a complex narrative surrounding the unexpected closure of Prytania Media’s subsidiaries. NetEase held a 25% stake in Crop Circle Games, a Prytania subsidiary, with a representative on the board. Initially a positive relationship, the Strains allege NetEase expressed concerns about compliance with U.S. foreign investment laws, including requests to maintain a “low profile” to avoid CFIUS scrutiny and suggestions to establish operations in Canada or Ireland to facilitate investment.

The complaint highlights NetEase’s alleged ties to the Chinese Communist Party (CCP), suggesting a motive to conceal these connections from the U.S. government. It cites the U.S. government's designation of Tencent as a "Chinese military company" and reports of NetEase CEO Ding Lei allegedly leveraging CCP retaliation threats against Activision Blizzard in 2023. The Strains also mention Lei's purported immigration to the U.S. and purchase of a Bel-Air mansion, suggesting concerns about jeopardizing this process through public disclosure of NetEase's investments.

As regulatory compliance questions persisted, the relationship deteriorated. Crop Circle Games experienced financial difficulties, leading to layoffs and furloughs in early 2024. The Strains claim that on February 22nd, Jeff Strain received a text alleging Crop Circle Games' fraudulent activities, a rumor they traced back to NetEase. A board meeting revealed a NetEase representative's comment about the company's rapid depletion of funds, seemingly confirming the rumor's origin.

Following this, investor confidence plummeted, resulting in Prytania Media and its subsidiaries becoming virtually worthless, down from an estimated $344 million valuation. Crop Circle Games closed in March 2024. In April, Annie Strain published a website letter attributing the company's struggles to economic downturn and funding issues, also mentioning an un-published Kotaku article. This letter was subsequently removed. Possibility Space, another Prytania subsidiary, closed shortly after.

Jeff and Annie Strain, along with Prytania Media, are suing NetEase for defamation, unfair trade practices, tortious interference, and negligence, seeking damages exceeding $900 million—triple their company's previous valuation. NetEase denies the allegations, asserting their commitment to ethical business practices and confidence in a favorable legal outcome.