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, initially filed in Louisiana state court and later moved to federal court, alleges NetEase deliberately devalued and ultimately caused the closure of their studio, Prytania Media Group, by spreading false rumors of fraud to investors.

The complaint paints a picture of NetEase's alleged actions as a calculated attempt to avoid U.S. legal compliance. NetEase, according to the Strains, invested 25% in Prytania's subsidiary, Crop Circle Games, placing a representative on the board. Initially positive, the relationship soured as NetEase reportedly expressed concerns about complying with U.S. foreign investment regulations, including requests to maintain a “low profile” to avoid CFIUS scrutiny and suggestions to establish operations in Canada or Ireland to facilitate investment.

A substantial portion of the complaint details NetEase's alleged ties to the Chinese Communist Party (CCP), suggesting a motive to conceal these connections from the U.S. government. The lawsuit cites the U.S. government's designation of Tencent as a “Chinese military company” and reports of NetEase CEO Ding Lei allegedly leveraging the threat of CCP retaliation against Activision Blizzard in 2023. The Strains also claim Lei expressed concerns about his U.S. immigration, citing his purchase of a Bel-Air mansion from Elon Musk, being jeopardized by publicized NetEase investments.

As the Strains pressed NetEase for 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 message from a venture capitalist claiming Crop Circle Games was accused of fraud, a rumor the Strains trace back to NetEase. A subsequent board meeting revealed NetEase's representative's comments about the company's rapid depletion of funds as the potential source of the rumor.

Following this, the complaint alleges investors withdrew funding from Prytania, leading to its devaluation from an estimated $344 million to near-worthlessness. Crop Circle Games closed in March 2024. Annie Strain subsequently published a letter on the company website attributing the closure to economic downturn and funding difficulties, also mentioning an un-published Kotaku article. This letter was later 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 over $900 million in damages. NetEase denies the allegations, stating they are “wholly without merit” and vowing a vigorous defense.