Jeff Strain, co-founder of ArenaNet and co-creator of State of Decay, along with his wife Annie Strain, are embroiled in a significant legal battle with NetEase, the creator of Marvel Rivals. The couple has filed a lawsuit seeking $900 million in damages, alleging that NetEase's actions led to the devaluation and eventual closure of their studio, Prytania Media Group. The Strains claim that NetEase spread false rumors among investors, accusing them of fraud, which ultimately caused their company's downfall.
The lawsuit, initially filed in January in the Orleans Parish civil district court and later moved to federal court, accuses NetEase of intentionally undermining the Strains' careers and company. The amended complaint, as reported by IGN, begins with a stark 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."
According to the Strains, 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. The relationship was initially positive, but tensions arose as NetEase expressed concerns about compliance with U.S. laws on foreign investment. The Strains allege that NetEase asked them to keep the investment "low profile" to avoid scrutiny from The Committee on Foreign Investment in the United States (CFIUS) and suggested opening branches in Canada or Ireland to facilitate NetEase's investment.
The complaint also delves into NetEase's alleged connections to the Chinese Communist Party (CCP), suggesting that the company wanted to keep these ties confidential. It references 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 further claim that Lei was in the process of immigrating to the U.S. and expressed concerns about his immigration being jeopardized if NetEase's investments were publicized.
As the Strains continued to question NetEase about regulatory compliance, their relationship deteriorated. Financial difficulties emerged, leading Crop Circle Games to lay off and furlough staff in early February 2024. The Strains allege that on February 22, Jeff Strain received a text from a venture firm's managing director, accusing Crop Circle Games of fraud and misuse of funds, which they traced back to NetEase. In a March board meeting, Han Chenglin reportedly admitted to expressing surprise at the company's rapid depletion of funds, which the Strains believe sparked the rumors.
Following these allegations, other investors withdrew funding from Prytania, and the company struggled to secure new investment. By the end of March, Prytania shuttered Crop Circle Games entirely, and its valuation plummeted from an estimated $344 million to nearly nothing. In April, 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 an unwritten Kotaku article by Ethan Gach that she claimed would have disclosed her personal health struggles without her consent. The letter was soon removed, and Kotaku never published the article. A week later, Prytania subsidiary Possibility Space closed, with Jeff Strain blaming leaks to the press, but 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, which is triple their company's previous valuation. In response, NetEase issued a statement to Polygon, denying the allegations and vowing to defend themselves vigorously. They emphasized their commitment to integrity and expressed confidence that the legal process would reveal the true reasons behind the Strains' studios' demise.
