Jeff Strain, co-founder of ArenaNet and co-creator of State of Decay, along with his wife Annie Strain, are embroiled in a legal battle with NetEase, the creators of Marvel Rivals. The couple is suing the Chinese gaming giant for a staggering $900 million, claiming that NetEase's actions led to the devaluation and eventual closure of their studio, Prytania Media Group. According to the Strains, NetEase spread false rumors among investors that they had committed fraud with their latest venture.
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 undermining the careers of two gaming industry veterans. 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' narrative in the complaint sheds light on the events leading up to the unexpected shutdown of Prytania Media's subsidiaries. Initially, NetEase invested in one of Prytania's subsidiaries, Crop Circle Games, securing a 25% share and placing Han Chenglin on the board, alongside Jeff and Annie Strain.
The relationship started positively, but tensions arose when NetEase expressed concerns about compliance with U.S. laws regarding foreign investment. The Strains allege that NetEase requested them to keep their investment "low profile" to evade scrutiny from The Committee on Foreign Investment in the United States (CFIUS). They were even suggested to open branches in Canada or Ireland to facilitate NetEase's investment.
The complaint also delves into NetEase's alleged ties to the Chinese Communist Party (CCP), suggesting that the company wanted to keep these connections confidential. It references Tencent's classification as a "Chinese military company" by the U.S. government and reports of NetEase CEO Ding Lei's alleged use of CCP threats 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 being jeopardized if NetEase's investments were publicized.
As the Strains continued to question NetEase about regulatory compliance, their relationship deteriorated. Amidst this, Crop Circle Games faced financial difficulties, leading to layoffs and furloughs in early February 2024. According to the Strains, on February 22, Jeff Strain received a text from a venture firm's managing director alleging fraud and misuse of funds at Crop Circle Games, which they traced back to NetEase. In a March board meeting, Han Chenglin allegedly admitted to expressing surprise at the company's rapid depletion of funds, suggesting this was the origin of the rumor.
Following these incidents, other investors reportedly withdrew funding from Prytania, leaving the company unable to secure new investments. The complaint states that Prytania and its subsidiaries became "worth nearly nothing," down from an estimated $344 million valuation, leading to the complete shutdown of Crop Circle Games by 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 funding issues. She also mentioned an alleged forthcoming article by Kotaku reporter Ethan Gach that she claimed would have disclosed her personal health struggles without her consent. The letter was soon removed, and Kotaku never published 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 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 prior 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.
