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 Strains' account details a complex series of events leading to Prytania's subsidiaries' unexpected closures.

NetEase initially invested 25% in Crop Circle Games, a Prytania subsidiary, placing a representative on the board. Initially positive, the relationship soured as NetEase expressed concerns about complying with U.S. foreign investment laws. Emails allegedly requested the Strains maintain a "low profile" to avoid CFIUS regulations and suggested establishing branches in Canada or Ireland to facilitate investment.

The complaint highlights NetEase's alleged ties to the Chinese Communist Party (CCP), suggesting a desire 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 threatening Activision Blizzard with CCP retaliation in 2023. The Strains also allege Lei, reportedly residing in a Bel-Air mansion purchased from Elon Musk, expressed concerns about his U.S. immigration status being jeopardized by publicized investments.

As the Strains questioned NetEase's compliance, their relationship deteriorated. Crop Circle Games experienced financial difficulties, leading to layoffs and furloughs in February 2024. A venture firm managing director then texted Jeff Strain, alleging Crop Circle Games was accused of fraud—a rumor the Strains traced back to NetEase. A board meeting revealed NetEase's representative admitted to expressing surprise at the company's rapid depletion of funds, potentially originating the fraud rumor.

Following these accusations, investors withdrew funding, and Prytania struggled to secure new investments. The company, 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 shortly after.

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 and intends to vigorously defend itself, asserting the lawsuit is without merit and the legal process will reveal the true reasons behind Prytania's failure.