Jeff and Annie Strain Sue NetEase for $900M Over Fraud Allegations

Jeff Strain and his wife Annie Strain, both renowned figures in the gaming industry for their work with ArenaNet and State of Decay, have initiated a $900 million lawsuit against NetEase, the creators of Marvel Rivals. The lawsuit, filed 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.

The Strains' complaint begins with a stark 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 narrative they present in the legal document attempts to clarify the events surrounding the sudden closures of Prytania Media's subsidiaries last year.

Initially, NetEase had 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. The relationship started positively but deteriorated as NetEase allegedly pressured the Strains to keep their investment discreet to circumvent regulations by The Committee on Foreign Investment in the United States (CFIUS). The complaint also mentions NetEase suggesting the opening of branches in Canada or Ireland to facilitate their investments.

A significant aspect of the complaint addresses NetEase's alleged ties to the Chinese Communist Party (CCP), suggesting that NetEase aimed to conceal these connections from U.S. authorities. The Strains reference Tencent's designation as a "Chinese military company" by the U.S. government and reports that NetEase CEO Ding Lei threatened Activision Blizzard with CCP retaliation in 2023 over licensing issues.

The Strains also claim that Lei was concerned about his immigration to the U.S. into a $29 million Bel-Air mansion, previously owned by Elon Musk, being jeopardized if NetEase's investments were publicized. As tensions escalated over compliance issues, the relationship between the Strains and NetEase worsened.

In early February 2024, Crop Circle Games faced financial difficulties, leading to layoffs and furloughs. The situation escalated when, on February 22, Jeff Strain received a text from a venture firm managing director alleging fraud and misuse of funds at Crop Circle Games, which the Strains traced back to NetEase. During a March board meeting, Han Chenglin's comment about the company's rapid depletion of funds was cited as the origin of these rumors.

Following these allegations, other investors withdrew their funding from Prytania, and the company struggled to attract new investments. By the end of March, Crop Circle Games was shut down, and Prytania's valuation plummeted from an estimated $344 million to nearly nothing.

In April, Annie Strain published a letter on the company website attributing the closures to industry economic downturns and funding issues, without mentioning NetEase or the fraud allegations. She also referenced a forthcoming Kotaku article that she claimed would expose her personal health issues, which was never published. A week later, Prytania subsidiary Possibility Space closed, with Jeff Strain attributing the closure to employee leaks to the press.

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 in business. They expressed confidence that the legal process would vindicate their position and reveal the true reasons behind the collapse of the Strains' studios.