Jeff Strain, a co-founder of ArenaNet and co-creator of State of Decay, along with his wife Annie Strain, are embroiled in a high-stakes legal battle against NetEase, the creators of Marvel Rivals. The Strains have filed a lawsuit in the civil district court for the parish of Orleans in Louisiana, which has since been moved to federal court, seeking $900 million in damages. They allege that NetEase's actions led to the devaluation and eventual closure of their studio, Prytania Media Group, by spreading damaging rumors among investors that the Strains had committed fraud.
The lawsuit begins with a strong claim: "This case is about 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' narrative, as detailed in the amended complaint seen by IGN, outlines a tumultuous relationship with NetEase, which initially invested in one of Prytania's subsidiaries, Crop Circle Games, acquiring a 25% stake and placing Han Chenglin on the board alongside Jeff and Annie Strain.
Initially, the partnership was described as positive. However, tensions arose when NetEase allegedly expressed concerns about compliance with U.S. laws on foreign investment. The complaint claims that NetEase requested the Strains to maintain a "low profile" on their investment to evade scrutiny from The Committee on Foreign Investment in the United States (CFIUS). They were purportedly asked to establish branches in Canada or Ireland to facilitate NetEase's investments.
The complaint further delves into NetEase's alleged connections to the Chinese Communist Party (CCP), suggesting that the company wanted to keep these ties confidential from the U.S. government. It references Tencent's designation as a "Chinese military company" by the U.S. government and reports that NetEase CEO Ding Lei allegedly used the threat of CCP retaliation against Activision Blizzard in 2023.
The Strains also mention that Ding Lei was reportedly in the process of immigrating to the United States and purchasing a $29 million Bel-Air mansion from Elon Musk in 2020. They claim Lei was concerned about his immigration status being jeopardized if NetEase's investments became public.
As the Strains continued to question NetEase about regulatory compliance, their relationship deteriorated. Around early February 2024, Crop Circle Games faced financial difficulties, leading to layoffs and furloughs, with internal confusion and anger over the handling of the situation.
The situation escalated on February 22, 2024, when Jeff Strain received a text from a venture firm managing director alleging fraud and misuse of funds at Crop Circle Games. The Strains traced these rumors back to NetEase, with Han Chenglin admitting in a March board meeting that he was surprised at the company's rapid financial decline, hinting at the source of the rumors.
Following these events, other investors withdrew funding from Prytania, and the company struggled to attract new investments. The complaint states that Prytania and its subsidiaries became nearly valueless, despite a previous valuation of $344 million, leading to the complete closure of Crop Circle Games by the end of March.
In April, Annie Strain published a letter on the company website attributing their struggles to the industry's economic downturn and funding issues. She also mentioned an alleged upcoming Kotaku article by Ethan Gach that would have discussed her personal health struggles without her consent. The letter was later removed, and Kotaku did not publish the article. A week later, Prytania subsidiary Possibility Space closed, with Jeff Strain attributing the closure to leaks to the press, without mentioning NetEase or the 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 previous valuation.
In response, NetEase issued a statement to Polygon, denying the allegations and asserting 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."
