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 complaint details a complex narrative surrounding the unexpected closure of Prytania Media's subsidiaries. NetEase held a 25% stake in Crop Circle Games, a Prytania subsidiary, with a representative on the board. Initially a positive relationship, the Strains allege NetEase expressed concerns about complying with U.S. foreign investment laws, suggesting the Strains maintain a “low profile” investment to avoid CFIUS regulations and even proposing opening branches in Canada or Ireland to facilitate investment.
The complaint extensively details NetEase's alleged ties to the Chinese Communist Party (CCP), suggesting a motive to conceal these connections from the U.S. government. This section 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, reportedly purchasing a $29 million Bel-Air mansion from Elon Musk in 2020, expressed concerns that publicizing NetEase's investments would jeopardize his U.S. immigration.
As the Strains questioned NetEase about regulatory compliance, their relationship deteriorated. Crop Circle Games experienced financial difficulties, leading to layoffs and furloughs in February 2024, causing internal confusion and anger. The Strains allege that on February 22nd, Jeff Strain received a text from a venture firm managing director accusing Crop Circle Games of fraud, a rumor they traced back to NetEase. A March board meeting revealed that NetEase's board member, Han Chenglin, had expressed surprise at the company's rapid depletion of funds, seemingly the origin of the fraud rumor.
Following these accusations, investors withdrew funding from Prytania, making it impossible to secure new investments. The once $344 million valued company became virtually worthless. Crop Circle Games closed in March 2024. In April, Annie Strain published a letter on the company 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. Possibility Space, another Prytania subsidiary, closed a week later, with Jeff Strain blaming employee leaks to the press. No mention of NetEase or fraud allegations was made at that time.
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—triple the company's previous valuation. NetEase denies the allegations, stating they are meritless and vowing a vigorous defense.
