Jeff Strain, co-founder of ArenaNet and co-creator of State of Decay, along with his wife Annie Strain, have filed a $900 million lawsuit against NetEase, the creator of Marvel Rivals. They allege that NetEase spread rumors among investors, claiming the Strains committed fraud with their latest venture, Prytania Media Group, leading to the devaluation and eventual closure of their studio.
The lawsuit, initially filed in January in the civil district court for the parish of Orleans in Louisiana and later moved to federal court, accuses NetEase of deliberately destroying the careers of the Strains and their company. The amended complaint, as seen by IGN, states, "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' complaint outlines a complex narrative surrounding the closure of Prytania Media's subsidiaries. NetEase initially invested in Crop Circle Games, a Prytania subsidiary, taking a 25% stake and placing Han Chenglin on the board alongside Jeff and Annie Strain. Initially, the relationship was positive, but tensions arose over compliance with U.S. laws regarding foreign investment. NetEase allegedly requested that the investment remain "low profile" to avoid scrutiny from The Committee on Foreign Investment in the United States (CFIUS) and suggested opening branches in Canada or Ireland to facilitate investment.
The complaint further delves into NetEase's alleged connections to the Chinese Community Party, suggesting that the company wanted to keep these ties confidential from the U.S. government. It cites 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 claim that Lei was in the process of immigrating to the U.S. and purchasing a $29 million Bel-Air mansion from Elon Musk, and expressed concern that publicizing NetEase's investments could jeopardize his immigration.
As the Strains continued to press NetEase about regulatory compliance, their relationship deteriorated. In early February 2024, Crop Circle Games faced financial difficulties, leading to layoffs and furloughs. On February 22, Jeff Strain received a text from a managing director of a venture firm invested in Prytania, alleging fraud and misuse of funds at Crop Circle Games, which the Strains traced back to NetEase. During a March board meeting, Han Chenglin acknowledged discussing the company's rapid depletion of funds, which the Strains believe led to the spread of the rumors.
Following these incidents, other investors withdrew funding from Prytania, and the company struggled to find new investors. Prytania's value plummeted from an estimated $344 million to nearly nothing, leading to the closure of Crop Circle Games at the end of March.
In April, Annie Strain published a letter on the company website, attributing the company's struggles to the industry's economic downturn and inability to secure funding. She also mentioned an alleged article by Kotaku reporter Ethan Gach, which she claimed would have disclosed 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 citing employee leaks to the press as the reason. Neither NetEase nor the fraud allegations were mentioned at the time.
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.
In response, NetEase provided 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.
