Jeff Strain, co-founder of ArenaNet and co-creator of State of Decay, along with his wife Annie Strain, are embroiled in a high-stakes legal battle with NetEase, the creators of Marvel Rivals. The Strains have filed a lawsuit seeking $900 million, alleging that NetEase's actions led to the devaluation and eventual closure of their studio, Prytania Media Group. They claim that NetEase spread rumors among investors accusing the Strains of fraud, which severely impacted their business.
The lawsuit, originally filed in January in Orleans Parish, Louisiana, and later moved to federal court, paints a detailed picture of the Strains' ordeal. According to the amended complaint obtained by IGN, the Strains assert that "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 begins with NetEase investing in Crop Circle Games, a subsidiary of Prytania Media, acquiring a 25% stake and placing Han Chenglin on the board alongside Jeff and Annie Strain. Initially, the relationship was positive, but tensions arose as NetEase expressed concerns over compliance with U.S. laws on foreign investments. Emails from NetEase allegedly requested the Strains to keep the 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 connections to the Chinese Communist Party (CCP), suggesting a desire to keep these ties hidden from U.S. authorities. The Strains reference Tencent's designation as a "Chinese military company" by the U.S. government and reports of NetEase CEO Ding Lei using the threat of CCP retaliation against Activision Blizzard in 2023.
Further complicating matters, 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. Lei reportedly feared that publicizing NetEase's investments could jeopardize his immigration status.
As the Strains continued to press NetEase on regulatory compliance, their relationship deteriorated. By early February 2024, Crop Circle Games faced financial difficulties, leading to layoffs and furloughs. Amidst internal confusion and anger, Jeff Strain received a text from a venture firm managing director on February 22, 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 that he was surprised at the company's rapid financial decline.
Following these allegations, other investors withdrew funding from Prytania, and the company struggled to attract new investment. By the end of March, Crop Circle Games was shuttered, 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 difficulty in securing funding. She also mentioned an alleged forthcoming Kotaku article by Ethan Gach that she claimed would have disclosed her personal health issues 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 are suing NetEase for defamation, unfair trade practices, tortious interference with business relations, and negligence, seeking damages exceeding $900 million—triple their company's previous valuation.
In response, NetEase issued a statement to Polygon, vehemently denying the allegations:
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.
