Jeff Strain, the co-founder of ArenaNet and co-creator of State of Decay, along with his wife Annie Strain, have initiated a $900 million lawsuit against NetEase, the creator of Marvel Rivals. The Strains allege that NetEase's actions led to the devaluation and eventual closure of their studio, Prytania Media Group, by spreading false rumors of fraud among investors.
The lawsuit, originally filed in January in the civil district court for the parish of Orleans in Louisiana and later moved to federal court, accuses NetEase of "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 claim that NetEase invested in one of Prytania's subsidiaries, Crop Circle Games, taking a 25% stake and placing Han Chenglin on the board alongside Jeff and Annie Strain.
Initially, the relationship between Prytania and NetEase was described as positive. However, tensions arose as NetEase allegedly expressed concerns about compliance with U.S. foreign investment laws, including a request to keep the investment "low profile" to avoid scrutiny from The Committee on Foreign Investment in the United States (CFIUS). The Strains were reportedly asked to establish branches in Canada or Ireland to facilitate NetEase's investment.
The complaint also delves into NetEase's alleged connections to the Chinese Communist Party (CCP), suggesting that NetEase wished to keep these ties hidden from the U.S. government. It references Tencent's designation as a "Chinese military company" by the U.S. and reports of NetEase CEO Ding Lei's alleged use of CCP threats in negotiations with Activision Blizzard.
The Strains further allege that Lei was concerned about his immigration to the U.S. and the purchase of a $29 million Bel-Air mansion from Elon Musk in 2020, fearing that publicizing NetEase's investments could jeopardize his status.
As tensions escalated, the Strains claim they continued to push for regulatory compliance, leading to a breakdown in their relationship with NetEase. Financial difficulties emerged, culminating in layoffs and furloughs at Crop Circle Games in early February 2024. On February 22, Jeff Strain received a text from a venture firm managing director alleging fraud and misuse of funds at Crop Circle Games, which the Strains traced back to NetEase. During a March board meeting, Han Chenglin reportedly expressed surprise at the company's rapid financial depletion, which the Strains believe contributed to the spread of the rumors.
Following these allegations, other investors reportedly withdrew funding from Prytania, and the company was unable to secure new investors. By the end of March, Prytania's value plummeted from an estimated $344 million to nearly nothing, leading to the closure of Crop Circle Games.
In April, Annie Strain published a letter on the company website attributing the company's struggles to the industry's economic downturn and difficulties in securing funding. She also mentioned an alleged upcoming Kotaku article about her personal health struggles, which was never published. 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 prior valuation.
NetEase responded to the lawsuit with a statement to Polygon, denying the allegations and affirming 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.
