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

Jeff Strain and his wife Annie Strain, co-founders of ArenaNet and co-creators of State of Decay, are taking legal action against NetEase, the creators of Marvel Rivals, seeking $900 million in damages. The couple alleges that NetEase's actions led to the devaluation and eventual shutdown of their studio, Prytania Media Group, by spreading false rumors of fraud among investors.

The lawsuit, initially filed in January in Orleans Parish, Louisiana, and later moved to federal court, accuses NetEase of deliberately undermining the Strains' careers and company. The amended complaint, as reported by IGN, begins with a strong statement: "This case is about 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 Strains' narrative in the complaint sheds light on the events surrounding the sudden closures of Prytania Media's subsidiaries last year. According to the complaint, NetEase initially invested in Prytania's subsidiary, Crop Circle Games, securing a 25% stake and placing Han Chenglin on the board alongside Jeff and Annie Strain. Initially, the partnership was positive, but tensions arose over time, particularly regarding compliance with U.S. laws on foreign investment.

The complaint details NetEase's alleged request for the Strains to keep their investment "low profile" to avoid scrutiny from the Committee on Foreign Investment in the United States (CFIUS). NetEase reportedly suggested opening branches in Canada or Ireland to facilitate investment without drawing attention. The complaint also delves into NetEase's alleged ties to the Chinese Communist Party, suggesting a motive for secrecy in their dealings.

Further complicating matters, the Strains claim that NetEase CEO Ding Lei was concerned about his immigration status and the publicity of NetEase's investments, as he was reportedly in the process of moving into a $29 million Bel-Air mansion purchased from Elon Musk in 2020.

As the Strains continued to press for regulatory compliance, their relationship with NetEase deteriorated. Financial difficulties emerged, leading to layoffs and furloughs at Crop Circle Games in early February 2024. The situation escalated when Jeff Strain received a text from a managing director of a venture firm, alleging fraud and misuse of funds at Crop Circle Games, which the Strains traced back to NetEase.

Following these allegations, other investors withdrew their funding, and Prytania Media struggled to attract new investment. By the end of March last year, Crop Circle Games had shut down, and Prytania's valuation plummeted from an estimated $344 million to nearly nothing.

In April, Annie Strain posted a letter on the company website attributing the company's struggles to the industry's economic downturn and funding challenges. She also mentioned an alleged article by Kotaku reporter Ethan Gach, which 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, without mentioning NetEase or fraud allegations.

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 their company's previous valuation.

In response, NetEase issued a statement to Polygon, denying the allegations and asserting their commitment to integrity:

The allegations by Prytania Media and its founders Annie and Jeff Strain are wholly without merit, and we emphatically deny and will vigorously defend ourselves against them. Our record as a global gaming company speaks for itself, and we remain committed to conducting business with integrity. We are confident that the legal process will vindicate our position and shed light on the real reasons behind the demise of the Strains’ studios.