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 Prytania Media's subsidiaries' unexpected closures. NetEase held a 25% stake in Crop Circle Games, one of Prytania's subsidiaries, with a representative on the board. Initially a positive relationship, the Strains allege NetEase expressed concerns about complying with U.S. foreign investment laws, suggesting the Strains maintain a "low profile" to avoid CFIUS regulations and even proposing establishing branches in Canada or Ireland to facilitate investment.

The lawsuit 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 claim Lei, reportedly residing in a Bel-Air mansion purchased from Elon Musk, expressed concern that publicizing NetEase's investments would jeopardize his U.S. immigration.

As the Strains questioned NetEase about regulatory compliance, their relationship deteriorated. Crop Circle Games experienced financial difficulties, leading to layoffs and furloughs in early February 2024. The Strains allege that on February 22nd, Jeff Strain received a text from a venture capital managing director accusing Crop Circle Games of fraud, a rumor the Strains trace back to NetEase. In a March board meeting, NetEase's representative reportedly admitted to expressing surprise at the company's rapid depletion of funds, suggesting this was the rumor's origin.

Following this, investors withdrew funding from Prytania, and the company failed to secure new investment. Prytania Media and its subsidiaries, once valued at $344 million, became virtually worthless. Crop Circle Games closed in March 2024. In April, Annie Strain published a letter on the company website attributing the company's struggles to the economic downturn and funding challenges, also mentioning an un-published Kotaku article. This letter was subsequently removed. Possibility Space, another Prytania subsidiary, closed a week later. Neither NetEase nor allegations of fraud were mentioned in these public statements.

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, stating they are without merit and vowing a vigorous defense.