Jeff Strain, co-founder of ArenaNet and co-creator of State of Decay, along with his wife Annie Strain, are taking legal action against NetEase, the creators of Marvel Rivals, for $900 million. They allege that NetEase spread rumors about fraud within their recent venture, Prytania Media Group, which led to the devaluation and eventual closure of their studio.
The lawsuit was initially filed in January in the civil district court for the parish of Orleans in Louisiana and has since been moved to federal court. According to the amended complaint reviewed by IGN, the case centers on 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 Strains' complaint details a complex narrative surrounding the unexpected shutdowns of Prytania Media's subsidiaries last year. They claim that NetEase initially invested in one of Prytania's subsidiaries, Crop Circle Games, acquiring a 25% share and placing Han Chenglin on the company board, with Jeff and Annie Strain holding the other two positions.
Initially, the relationship was described as positive. However, the Strains allege that over time, NetEase expressed concerns about compliance with U.S. laws on foreign investment. They cite an email requesting that the investment remain "low profile" to avoid scrutiny from The Committee on Foreign Investment in the United States (CFIUS). Additionally, they claim NetEase suggested opening branches in Canada or Ireland to facilitate their investment.
The complaint further alleges NetEase's ties to the Chinese Communist Party (CCP), suggesting the company wanted to keep these connections confidential from the U.S. government. They reference Tencent being declared a "Chinese military company" by the U.S. government and reports of NetEase CEO Ding Lei using the threat of CCP retaliation against Activision Blizzard in 2023.
The Strains also mention that Lei was reportedly in the process of immigrating to the U.S. and had purchased a $29 million Bel-Air mansion from Elon Musk in 2020. They claim Lei expressed concern that publicizing NetEase's investments could jeopardize his immigration.
As the Strains continued to raise questions about regulatory compliance, their relationship with NetEase deteriorated. Concurrently, Crop Circle Games faced financial difficulties, leading to layoffs and furloughs in early February 2024. Amidst internal confusion and anger, 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 allegedly admitted to expressing surprise at the company's rapid depletion of funds, which the Strains believe sparked the fraud rumors. Following this, other investors withdrew funding from Prytania, and the company could not secure new investments. By the end of March last year, Crop Circle Games had shut down entirely, with Prytania's valuation plummeting 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 funding issues. She also mentioned an alleged forthcoming article by Kotaku reporter Ethan Gach about her personal health struggles, which was never published. The letter was soon taken down, and a week later, Prytania subsidiary Possibility Space closed, with Jeff Strain citing employee leaks to the press as the reason. Neither NetEase nor fraud allegations were mentioned at the time.
The Strains and Prytania Media are suing NetEase for defamation, unfair trade practices, tortious interference with business relations, and negligence, seeking damages exceeding $900 million, triple their company's prior valuation.
In response, NetEase issued a statement to Polygon, asserting that the allegations are "wholly without merit" and that they will "vigorously defend" themselves. They emphasized their commitment to conducting business with integrity and expressed confidence that the legal process would reveal the true reasons behind the Strains' studios' demise.
