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 asserts that NetEase, a Chinese entity, sought to avoid U.S. legal compliance. The Strains' narrative details a complex situation surrounding Prytania's unexpected subsidiary closures. NetEase invested 25% in Crop Circle Games, a Prytania subsidiary, placing a representative on the board. Initially positive, the relationship soured as NetEase reportedly expressed concerns about complying with U.S. foreign investment laws, suggesting the Strains maintain a "low profile" to avoid CFIUS regulations and even proposing relocating operations to Canada or Ireland to facilitate investment.

The complaint highlights NetEase's alleged ties to the Chinese Communist Party (CCP), suggesting a desire to keep these connections confidential from the U.S. government. This claim cites Tencent's designation as a "Chinese military company" by the U.S. government and reports of NetEase CEO Ding Lei allegedly using the threat of CCP retaliation against Activision Blizzard in 2023. The Strains also allege Lei, reportedly residing in a Bel-Air mansion purchased from Elon Musk, expressed concern that his U.S. immigration status would be jeopardized by publicized NetEase investments.

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 claim that on February 22nd, Jeff Strain received a text from a venture capital managing director alleging Crop Circle Games was accused of fraud, a rumor they traced back to NetEase. A March board meeting included an admission from NetEase's board member that his comments about the company's rapid depletion of funds may have fueled the rumor.

Following this, investors withdrew funding from Prytania, making it impossible to secure new investments. Prytania Media and its subsidiaries, once valued at $344 million, became virtually worthless. Crop Circle Games closed in March 2024. Annie Strain subsequently published a letter (later removed) attributing the company's struggles to economic downturn and funding issues, also mentioning an un-published Kotaku article. Possibility Space, another Prytania subsidiary, closed a week later, with Jeff Strain blaming employee leaks. Neither NetEase nor fraud allegations were mentioned in this statement.

Jeff and Annie Strain, along with Prytania Media, are suing NetEase for defamation, unfair trade practices, tortious interference, and negligence, seeking over $900 million in damages—triple their company's previous valuation. NetEase denies the allegations, stating they are without merit and vowing a vigorous defense.