Jeff Strain and Annie Strain, renowned figures in the gaming industry and co-founders of ArenaNet and creators of State of Decay, have filed a $900 million lawsuit against NetEase, the creators of Marvel Rivals. The lawsuit, initiated in January in Orleans Parish, Louisiana, and subsequently moved to federal court, accuses NetEase of causing the devaluation and eventual closure of their studio, Prytania Media Group, through the spread of fraudulent rumors among investors.
The amended complaint, as reported by IGN, begins with a strong statement: "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 details a troubled partnership with NetEase, which 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.
Initially, the relationship was described as positive, but tensions arose as NetEase allegedly expressed concerns about compliance with U.S. laws on foreign investment. The complaint mentions an email from NetEase requesting that their investment remain "low profile" to avoid scrutiny from The Committee on Foreign Investment in the United States (CFIUS). They were also allegedly encouraged to establish branches in Canada or Ireland to facilitate NetEase's investment.
The complaint further delves into NetEase's alleged connections to the Chinese Communist Party (CCP), suggesting that the company 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 using the threat of CCP retaliation against Activision Blizzard in 2023.
Additionally, the Strains claim that Ding Lei was in the process of immigrating to the U.S. and purchasing a $29 million Bel-Air mansion from Elon Musk in 2020. They allege that 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. Financial difficulties emerged, leading Crop Circle Games to lay off and furlough staff in early February 2024. Amidst internal confusion and anger, Jeff Strain received a text on February 22 from a venture firm's 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 to expressing surprise at the company's rapid financial decline.
Following these allegations, other investors withdrew funding from Prytania, and the company struggled to secure new investments. By the end of March, Crop Circle Games was shut down, and Prytania's value plummeted from an estimated $344 million to nearly nothing.
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 forthcoming Kotaku article by Ethan Gach that she claimed would have disclosed her personal health struggles without her consent. The letter was soon removed, and Kotaku did not publish the article. A week later, Prytania's subsidiary, Possibility Space, closed, with Jeff Strain citing employee leaks to the press as the reason, without mentioning NetEase or fraud allegations.
The Strains and Prytania Media 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.
