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 in Louisiana and subsequently moved to federal court, the amended complaint accuses NetEase, a Chinese entity, of intentionally sabotaging the Strains' careers to avoid U.S. legal compliance. The Strains' narrative details a complex situation surrounding Prytania's unexpected subsidiary shutdowns. NetEase held a 25% stake in Crop Circle Games, a Prytania subsidiary, with Han Chenglin serving on the board alongside the Strains.

Initially a positive relationship, the Strains allege NetEase expressed concerns about U.S. foreign investment laws, requesting a "low profile" investment to circumvent CFIUS regulations and suggesting 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 keep these connections confidential from the U.S. government. This is supported by citing Tencent's designation as a "Chinese military company" and reports of NetEase CEO Ding Lei allegedly using the threat of CCP retaliation against Activision Blizzard in 2023.

The Strains further claim Lei, reportedly in the process of immigrating to a $29 million Bel-Air mansion (purchased from Elon Musk in 2020), expressed concerns that publicizing NetEase's investments would jeopardize his immigration status. As the Strains questioned NetEase's regulatory compliance, their relationship deteriorated. Crop Circle Games experienced financial difficulties, leading to layoffs and furloughs in February 2024, causing internal confusion and anger.

On February 22nd, Jeff Strain received a text from a venture firm managing director alleging Crop Circle Games was accused of fraud, a rumor the Strains traced back to NetEase. Han Chenglin reportedly admitted to making a comment suggesting the company's rapid depletion of funds, which fueled the rumor. Following this, investors withdrew funding, leaving Prytania unable to secure new investments. Prytania's value plummeted from an estimated $344 million to near zero, resulting in Crop Circle Games' closure in March 2024.

Annie Strain subsequently published a letter (later removed) blaming the economic downturn and funding difficulties, 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 at that time.

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, stating their actions were conducted with integrity and expressing confidence in a favorable legal outcome.