Jeff Strain, co-founder of ArenaNet and co-creator of State of Decay, along with his wife Annie Strain, have filed a $900 million lawsuit against NetEase, the creators of Marvel Rivals. They allege that NetEase spread false rumors among investors, claiming the Strains committed fraud with their latest venture, Prytania Media Group, leading to the devaluation and eventual closure of their studio.
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 deliberately destroying the careers of two gaming industry veterans. The Strains' complaint details their initial positive relationship with NetEase, which began when the Chinese company invested in Prytania's subsidiary, Crop Circle Games, taking a 25% share and placing Han Chenglin on the board alongside Jeff and Annie Strain.
However, tensions reportedly arose over compliance with U.S. foreign investment laws. The Strains claim that NetEase requested they keep their investment discreet to avoid scrutiny from The Committee on Foreign Investment in the United States (CFIUS) and even suggested opening branches in Canada or Ireland to facilitate NetEase's investment. The complaint further alleges that NetEase sought to hide its ties to the Chinese Communist Party from the U.S. government, citing Tencent's classification as a "Chinese military company" and reports of NetEase CEO Ding Lei using the threat of CCP retaliation against Activision Blizzard.
The Strains also mention that Ding Lei was reportedly 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 could jeopardize his immigration status.
As their relationship with NetEase deteriorated, Crop Circle Games faced financial difficulties, leading to layoffs and furloughs in early February 2024. The situation escalated when Jeff Strain received a text from a venture firm's managing director alleging fraud and misuse of funds at Crop Circle Games, which the Strains traced back to NetEase. Han Chenglin reportedly admitted to discussing the company's rapid financial decline with colleagues, which the Strains believe sparked the damaging rumors.
Following these allegations, other investors withdrew funding from Prytania, and the company struggled to secure new investments. Prytania's valuation plummeted from an estimated $344 million to nearly nothing, culminating in the closure of Crop Circle Games by the end of March.
In April, Annie Strain published a letter on the company website attributing the closures to industry economic downturns and funding issues. She also mentioned a forthcoming Kotaku article about her personal health struggles, which was never published. Shortly after, Prytania's subsidiary Possibility Space shut down, 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.
NetEase responded to the lawsuit, stating to Polygon that the allegations are baseless and they will defend themselves vigorously. They emphasized their commitment to integrity and expressed confidence that the legal process would reveal the true reasons behind the closure of the Strains' studios.
