Jeff and Annie Strain Sue NetEase for $900M, Alleging Fraud Misrepresentation to Investors

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 against NetEase, the creators of Marvel Rivals. They are suing the Chinese gaming giant for $900 million, claiming that NetEase's actions led to the devaluation and eventual closure of their studio by spreading false rumors about fraud to investors.

The case, 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 causing "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 complaint details a tumultuous relationship between the Strains and NetEase, which began when NetEase invested in Prytania Media Group's subsidiary, Crop Circle Games, securing a 25% stake and placing Han Chenglin on the board alongside Jeff and Annie Strain. Initially, the partnership was described as positive, but tensions arose over time, particularly around compliance with U.S. laws governing foreign investments.

The Strains allege that NetEase pressured them to keep the investment low-profile to sidestep scrutiny from The Committee on Foreign Investment in the United States (CFIUS), even suggesting opening branches in Canada or Ireland to facilitate easier investment. The complaint also touches on NetEase's alleged ties to the Chinese Communist Party, suggesting an intent to keep these connections hidden from U.S. authorities.

The situation escalated when Jeff Strain was informed by a managing director of a venture firm about rumors of fraud and misuse of funds at Crop Circle Games, which they traced back to NetEase. Following this, other investors reportedly pulled their funding, leaving Prytania Media and its subsidiaries nearly worthless, down from an estimated value of $344 million. Crop Circle Games was ultimately shut down at the end of March last year.

Amidst these events, Annie Strain published a letter on the company website attributing the company's struggles to the industry's economic downturn and difficulties in securing funding. She also mentioned a forthcoming article by Kotaku reporter Ethan Gach, which 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 subsidiary Possibility Space closed, with Jeff Strain citing leaks to the press as the reason, though no mention was made of NetEase or the fraud allegations at the time.

The Strains are now suing NetEase for defamation, unfair trade practices, tortious interference with business relations, and negligence, seeking damages that exceed $900 million, which is triple their company's prior valuation.

In response, NetEase issued a statement to Polygon, denying the allegations and expressing confidence that the legal process would vindicate their position and reveal the true reasons behind the demise of the Strains' studios.