Jeff Strain, co-founder of ArenaNet and co-creator of State of Decay, along with his wife Annie Strain, have initiated a $900 million lawsuit against NetEase, the creators of Marvel Rivals. The Strains allege that NetEase's actions led to the devaluation and eventual closure of their studio by spreading false rumors among investors that they had engaged in fraud with their latest venture, Prytania Media Group.
The lawsuit was initially filed in January in the civil district court for the parish of Orleans in Louisiana and has since been transferred to federal court. The amended complaint, as reported by IGN, begins with a strong accusation: "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 provided by the Strains in the complaint is intricate and leaves many questions unanswered from last year when Prytania Media's subsidiaries began to shut down unexpectedly. According to their account, NetEase made an early investment in one of Prytania's subsidiaries, Crop Circle Games, acquiring a 25% stake and placing Han Chenglin on the company board, with Jeff and Annie Strain occupying the remaining two seats.
Initially, the relationship was described as positive. However, the Strains claim that over time, NetEase leaders and representatives started expressing concerns about compliance with U.S. laws on foreign investment. They mention an email from NetEase asking the Strains to keep their investment "low profile" to circumvent regulations set by The Committee on Foreign Investment in the United States (CFIUS). The complaint further states that NetEase suggested opening branches in Canada or Ireland to facilitate their investment.
A substantial part of the complaint attempts to detail NetEase's alleged connections to the Chinese Communist Party, suggesting that NetEase wanted to conceal these ties from the U.S. government. The Strains reference Tencent's classification as a "Chinese military company" by the U.S. government and reports that NetEase CEO Ding Lei allegedly used the threat of CCP retaliation against Activision Blizzard in 2023 during licensing negotiations.
The Strains also allege that Ding Lei was in the process of immigrating to the U.S., purchasing a $29 million Bel-Air mansion from Elon Musk in 2020. They claim Lei was concerned that publicizing NetEase's investments would jeopardize his immigration.
The Strains assert that they continuously questioned NetEase about regulatory compliance, leading to a deterioration in their relationship. Financial difficulties reportedly emerged around this time, and in early February 2024, Crop Circle Games laid off and furloughed staff. IGN reported significant internal confusion, fear, and subsequent anger over the handling of the situation.
According to the complaint, 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. The Strains traced the rumor back to NetEase, claiming that Han Chenglin admitted during a March board meeting to expressing surprise about the company's rapid depletion of funds, which they believe sparked the rumor.
Following this, other investors reportedly withdrew funding from Prytania, and the company could not secure new investors. The complaint states that Prytania Media and its subsidiaries became "worth nearly nothing," despite once being valued at $344 million. Crop Circle Games was completely shut down by the end of March last year.
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 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 did not publish the article. A week later, Prytania subsidiary Possibility Space closed, with Jeff Strain citing employee leaks to the press as the cause. At the time, neither NetEase nor the fraud allegations were mentioned.
Jeff Strain, Annie Strain, 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, asserting that the allegations by Prytania Media and the Strains are "wholly without merit" and that they will "vigorously defend" themselves. They emphasized their commitment to integrity and confidence that the legal process will clarify the true reasons behind the Strains' studios' demise.
