Jeff and Annie Strain, co-founders of ArenaNet and co-creator of State of Decay, respectively, are suing NetEase, the creator of Marvel Rivals, for $900 million. Their lawsuit, initially filed in Louisiana state court and subsequently moved to federal court, alleges NetEase deliberately devalued and ultimately destroyed their studio, Prytania Media Group, by spreading false rumors of fraud to investors.
The amended complaint asserts NetEase, a Chinese entity, acted to avoid U.S. law compliance. The Strains' account details a complex situation surrounding Prytania's unexpected subsidiary closures. NetEase invested 25% in Crop Circle Games, a Prytania subsidiary, gaining a board seat alongside the Strains. Initially positive, the relationship soured as NetEase expressed concerns about U.S. foreign investment regulations, reportedly requesting a "low profile" investment to circumvent CFIUS (Committee on Foreign Investment in the United States) rules and suggesting offshore branches in Canada or Ireland to facilitate investment.
The complaint highlights NetEase's alleged ties to the Chinese Communist Party (CCP), suggesting a desire to maintain confidentiality from the U.S. government. This is supported by citing the U.S. government's designation of Tencent as a "Chinese military company" and reports of NetEase CEO Ding Lei allegedly using CCP retaliation threats against Activision Blizzard in 2023. The Strains also claim Lei, reportedly residing in a Bel-Air mansion purchased from Elon Musk, expressed immigration concerns if NetEase's investments were publicized.
As the Strains questioned NetEase's regulatory compliance, their relationship deteriorated. Crop Circle Games experienced financial difficulties, leading to layoffs and furloughs in February 2024, causing internal confusion and anger. The Strains claim that on February 22nd, Jeff Strain received a text alleging Crop Circle Games' fraud, a rumor they traced back to NetEase via a venture firm managing director. In a March board meeting, Han Chenglin (NetEase's representative) indirectly confirmed being the source of the rumor.
Following this, investors withdrew funding, and Prytania struggled to secure new investment. The company, once valued at $344 million, became nearly worthless. Crop Circle Games closed in March 2024. In April, Annie Strain published a website letter attributing the company's struggles to economic downturn and funding issues, also mentioning an un-published Kotaku article. This letter was later removed. Possibility Space, another Prytania subsidiary, closed a week later, with Jeff Strain blaming employee leaks. NetEase and fraud allegations were not mentioned in these public statements.
Jeff and Annie Strain, and Prytania Media, are suing NetEase for defamation, unfair trade practices, tortious interference, and negligence, seeking over $900 million in damages—triple Prytania's previous valuation. NetEase denies the allegations, stating their actions were conducted with integrity and vowing a vigorous defense.