Jeff Strain and his wife Annie Strain, both renowned in the gaming industry as co-founders of ArenaNet and co-creators of State of Decay, have filed a $900 million lawsuit against NetEase, the creators of Marvel Rivals. The lawsuit, which was 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 devaluation and eventual closure of their studio, Prytania Media Group, by spreading false rumors of fraud among investors.
According to the amended complaint obtained by IGN, the Strains allege that NetEase's actions led to "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 troubled relationship that began when NetEase 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 seemed promising, but tensions arose when NetEase reportedly expressed concerns over compliance with U.S. laws regarding foreign investments. The Strains claim that NetEase requested them to keep the investment "low profile" and suggested opening branches in Canada or Ireland to sidestep regulations enforced by The Committee on Foreign Investment in the United States (CFIUS).
The complaint further delves into NetEase's alleged connections to the Chinese Communist Party (CCP), suggesting that the company aimed to conceal these ties from the U.S. government. It references Tencent's classification as a "Chinese military company" by the U.S. and reports of NetEase CEO Ding Lei using the threat of CCP retaliation against Activision Blizzard in 2023.
Additionally, the Strains mention that Lei was allegedly in the process of immigrating to the U.S. and expressed fears that his immigration could be jeopardized if NetEase's investments were publicized. As the Strains continued to raise concerns about regulatory compliance, their relationship with NetEase deteriorated.
Financial difficulties surfaced in early February 2024, when Crop Circle Games began layoffs and furloughs, leading to confusion and anger among the staff. The situation escalated on February 22, when Jeff Strain received a text from a venture firm managing director alleging fraud and misuse of funds at Crop Circle Games, which the Strains traced back to NetEase. During a March board meeting, Han Chenglin reportedly acknowledged his surprise at the company's rapid depletion of funds, hinting at the source of the rumors.
Following these allegations, other investors withdrew funding from Prytania, and the company struggled to attract new investors. 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 closures to the industry's economic downturn and funding challenges. She also mentioned an unwritten article by Kotaku reporter Ethan Gach, which she claimed would have disclosed her personal health struggles without her consent. The letter was removed shortly after, and Possibility Space, another Prytania subsidiary, closed a week later, 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 to the lawsuit, NetEase issued a statement to Polygon, asserting that the allegations are baseless and expressing confidence that the legal process would vindicate their position and reveal the true reasons behind the collapse of the Strains' studios.
