Jeff and Annie Strain Sue NetEase for $900 Million, Alleging It Erroneously Told Investors They Committed Fraud

Jeff and Annie Strain, industry veterans and founders of ArenaNet and State of Decay, respectively, are suing NetEase, the creator of Marvel Rivals, for a staggering $900 million. Their lawsuit, initially filed in Louisiana state court and subsequently moved to federal court, alleges that NetEase systematically destroyed their studio, Prytania Media Group, and their careers through a calculated smear campaign. The suit dramatically accuses NetEase, a Chinese entity, of deliberately undermining Prytania to avoid compliance with U.S. law.

The Strains’ detailed complaint paints a complex picture of their relationship with NetEase. Initially, NetEase invested 25% in Prytania's subsidiary, Crop Circle Games, gaining a board seat alongside the Strains. However, the relationship soured as NetEase allegedly expressed concerns about complying with U.S. foreign investment regulations, even suggesting the Strains maintain a “low profile” to avoid scrutiny from the Committee on Foreign Investment in the United States (CFIUS). The complaint further alleges NetEase urged them to establish operations in Canada or Ireland to facilitate investment.

A substantial portion of the complaint focuses on NetEase's alleged ties to the Chinese Communist Party (CCP), suggesting a motive to conceal these connections from the U.S. government. The suit cites the U.S. government's designation of Tencent as a “Chinese military company” and reports of NetEase CEO Ding Lei allegedly leveraging CCP threats against Activision Blizzard in 2023. The Strains also claim Lei, who reportedly purchased a $29 million Bel-Air mansion from Elon Musk in 2020, expressed concerns that his U.S. immigration status would be jeopardized if NetEase’s investments were publicly disclosed.

As the Strains pressed NetEase on 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 fraud and misuse of funds at Crop Circle Games—rumors the Strains attribute to NetEase. A March board meeting allegedly revealed that NetEase’s board member, Han Chenglin, had inadvertently spread the rumors.

Following these allegations, investors withdrew funding from Prytania, leaving the company unable to secure new investments. Prytania's value plummeted from an estimated $344 million to near zero, resulting in the closure of Crop Circle Games in March 2024. In April, Annie Strain published a letter on Prytania's website attributing the company's struggles to the economic downturn and funding difficulties, also mentioning an un-published Kotaku article. This letter was later removed. Subsequently, another Prytania subsidiary, Possibility Space, also shut down.

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 responded to Polygon, stating that the allegations are baseless and that they will vigorously defend themselves against the lawsuit, expressing confidence that the legal process will exonerate them.