Jeff Strain and Annie Strain, renowned figures in the gaming industry for their roles in founding ArenaNet and co-creating State of Decay, have initiated a $900 million lawsuit against NetEase, the creators of Marvel Rivals. The couple alleges that NetEase's actions led to the devaluation and eventual closure of their studio, Prytania Media Group, by spreading false rumors of fraud among investors.
The lawsuit, originally filed in January in Orleans Parish, Louisiana, and subsequently moved to federal court, accuses NetEase of deliberately undermining the Strains' careers and their company. The amended complaint, as reported by IGN, states, "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."
According to the complaint, NetEase initially invested in Prytania's subsidiary, Crop Circle Games, acquiring a 25% stake and placing Han Chenglin on the board alongside Jeff and Annie Strain. Initially, the partnership was described as positive. However, tensions arose when NetEase reportedly expressed concerns about complying with U.S. foreign investment laws, including a request to keep the investment "low profile" to avoid scrutiny from The Committee on Foreign Investment in the United States (CFIUS). The complaint also alleges that NetEase suggested opening branches in Canada or Ireland to facilitate easier investment.
The Strains further claim that NetEase has ties to the Chinese Community Party, which the company allegedly wanted to conceal from the U.S. government. They reference Tencent's designation as a "Chinese military company" by the U.S. and reports that NetEase CEO Ding Lei used the threat of CCP retaliation against Activision Blizzard in 2023. Additionally, they mention that Lei was in the process of immigrating to the U.S. and purchasing a $29 million Bel-Air mansion from Elon Musk, expressing concerns about his immigration status if NetEase's investments were publicized.
As the relationship deteriorated, financial difficulties emerged at Crop Circle Games, leading to layoffs and furloughs in February 2024. The complaint states that Jeff Strain received a text from a managing director of a venture firm invested in Prytania, alleging fraud and misuse of funds at Crop Circle Games. The Strains traced the rumor back to NetEase, with Han Chenglin admitting in a board meeting that he was surprised by the company's rapid financial decline.
Following these allegations, other investors withdrew their funding, and Prytania struggled to secure new investments. By the end of March, Crop Circle Games was shut down, and Prytania's valuation plummeted from $344 million to nearly nothing. In April, Annie Strain published a letter on the company website attributing the closures to the industry's economic downturn and funding challenges, also mentioning a potential Kotaku article about her personal health struggles. This letter was later removed, and the article was never published. A week later, Prytania's subsidiary, Possibility Space, closed, with Jeff Strain citing employee leaks to the press as the reason.
The Strains 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 prior valuation.
In response, NetEase issued a statement to Polygon, denying the allegations and asserting their commitment to integrity. They stated, "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."
