Jeff and Annie Strain Sue NetEase for $900 Million, Alleging It Erroneously Told Investors They Committed Fraud

Jeff and Annie Strain, gaming industry veterans and founders of ArenaNet and State of Decay, respectively, are suing NetEase, the creator of Marvel Rivals, for a staggering $900 million. Their lawsuit, initially filed in Louisiana state court and subsequently moved to federal court, alleges that NetEase systematically destroyed their studio, Prytania Media Group, by spreading false rumors of fraud to key investors.

The complaint paints a picture of a once-positive relationship between the Strains and NetEase, which began with NetEase taking a 25% stake in Prytania's subsidiary, Crop Circle Games. However, the relationship soured over concerns regarding compliance with U.S. foreign investment laws. NetEase allegedly pressured the Strains to maintain a low profile regarding their investment to avoid scrutiny from the Committee on Foreign Investment in the United States (CFIUS), even suggesting they establish operations in Canada or Ireland to facilitate investment.

A substantial portion of the lawsuit details NetEase's alleged ties to the Chinese Communist Party (CCP), suggesting a motive to conceal these connections from the U.S. government. The complaint cites the U.S. government's designation of Tencent as a Chinese military company and reports of NetEase CEO Ding Lei allegedly leveraging the threat of CCP retaliation against Activision Blizzard in 2023. The Strains also allege that Lei, reportedly residing in a Bel-Air mansion purchased from Elon Musk, expressed concerns about his U.S. immigration status being jeopardized by public disclosure of NetEase's investments.

As the Strains questioned NetEase's regulatory compliance, their relationship deteriorated, coinciding with financial difficulties at Crop Circle Games. In February 2024, Crop Circle Games initiated layoffs and furloughs, leading to internal confusion and anger. The Strains claim that a rumor of fraud and misuse of funds, originating from NetEase, was spread among investors, causing them to withdraw funding. A March board meeting allegedly revealed that a NetEase board member inadvertently confirmed the source of these rumors.

The ensuing loss of investor confidence led to the devaluation of Prytania Media Group, from an estimated $344 million to near-worthlessness. Crop Circle Games closed in March 2024. While Annie Strain initially attributed the company's struggles to economic downturn and difficulties securing funding in a since-removed online statement, the lawsuit omits mention of NetEase's alleged actions at that time. A subsequent subsidiary closure was later blamed on employee leaks.

Jeff and Annie Strain, along with Prytania Media, are suing NetEase for defamation, unfair trade practices, tortious interference, and negligence. They seek damages exceeding $900 million—triple the company's previous valuation.

NetEase responded to the lawsuit with a statement to Polygon, vehemently denying the allegations and asserting their commitment to ethical business practices. They expressed confidence that the legal process will exonerate them.