Jeff Strain, 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 creators 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, 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 "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."
According to the Strains' complaint, NetEase initially invested in Prytania's subsidiary, Crop Circle Games, acquiring a 25% stake and placing Han Chenglin on the board alongside Jeff and Annie Strain. The relationship reportedly started positively but deteriorated over time as NetEase expressed concerns about compliance with U.S. laws on foreign investment. The Strains claim they were pressured to keep the investment "low profile" and were suggested to open branches in Canada or Ireland to facilitate NetEase's investment without drawing scrutiny from The Committee on Foreign Investment in the United States (CFIUS).
The complaint further alleges that NetEase sought to conceal its ties to the Chinese Communist Party (CCP) 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 allegedly using the threat of CCP retaliation against Activision Blizzard in 2023. The Strains also mention that Lei was reportedly in the process of immigrating to the U.S. and expressed concerns about his immigration status being jeopardized if NetEase's investments were publicized.
The Strains assert that their persistent inquiries about regulatory compliance strained their relationship with NetEase. Amidst these tensions, Crop Circle Games faced financial difficulties, leading to layoffs and furloughs in early February 2024. The situation escalated when Jeff Strain received a text from a venture firm's managing director on February 22, alleging fraud and misuse of funds at Crop Circle Games, which the Strains traced back to NetEase. In a subsequent board meeting, Han Chenglin reportedly expressed surprise at the company's rapid depletion of funds, which the Strains believe fueled the rumors.
Following these allegations, other investors withdrew funding from Prytania, and the company struggled to secure new investments. By the end of March last year, Prytania's valuation 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 funding issues. She also mentioned an alleged article by Kotaku reporter Ethan Gach that 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, 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.
In response, NetEase issued 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.
