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 lawsuit against NetEase, the creator of Marvel Rivals, seeking $900 million in damages. They allege that NetEase's actions led to the devaluation and eventual closure of their studio, Prytania Media Group, by spreading false rumors of fraud among investors.

The lawsuit, 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 causing significant damage to the Strains' careers and company. According to the amended complaint reviewed by IGN, the case centers on NetEase's alleged attempts to circumvent U.S. laws regarding foreign investment.

The Strains' narrative 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 was described as positive. However, tensions arose when NetEase expressed concerns about compliance with U.S. regulations, including a request to keep their investment discreet to avoid scrutiny from The Committee on Foreign Investment in the United States (CFIUS). The Strains were allegedly asked to establish branches in Canada or Ireland to facilitate NetEase's investment.

The complaint also delves into NetEase's alleged connections to the Chinese Communist Party (CCP), suggesting the company wanted to keep these ties hidden from U.S. authorities. It references Tencent's designation as a "Chinese military company" by the U.S. government and reports of NetEase CEO Ding Lei's alleged use of CCP retaliation threats against Activision Blizzard in 2023.

Additionally, the Strains claim that Lei was in the process of immigrating to the U.S. and had purchased a $29 million Bel-Air mansion from Elon Musk in 2020. They allege that Lei feared his immigration could be jeopardized if NetEase's investments became public knowledge.

As the Strains continued to question NetEase about regulatory compliance, their relationship deteriorated. In early February 2024, Crop Circle Games faced financial difficulties, leading to layoffs and furloughs. On February 22, Jeff Strain received a text from a venture firm's managing director alleging fraud and misuse of funds at Crop Circle Games, which the Strains traced back to NetEase. In a March board meeting, Han Chenglin's comment about the company's rapid depletion of funds was cited as the source of the rumor.

Following these allegations, other investors withdrew funding from Prytania, and the company struggled to attract new investment. 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 difficulties in securing funding. She also mentioned a forthcoming Kotaku article by Ethan Gach 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 leaks to the press as the reason, though no mention was made of NetEase or fraud allegations at that time.

The Strains are suing NetEase for defamation, unfair trade practices, tortious interference with business relations, and negligence, seeking damages exceeding $900 million, which is triple Prytania's previous valuation.

In response, NetEase issued a statement to Polygon denying the allegations and affirming their commitment to conducting business with integrity. They expressed confidence that the legal process would vindicate their position and reveal the true causes of the Strains' studios' downfall.