Jeff Strain, co-founder of ArenaNet and co-creator of State of Decay, along with his wife Annie Strain, have filed a $900 million lawsuit against NetEase, the creators of Marvel Rivals. The lawsuit, 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 fraudulent rumors among investors.
The Strains' complaint alleges that NetEase invested in one of Prytania's subsidiaries, Crop Circle Games, taking a 25% share and placing Han Chenglin on the board. Initially, the relationship was positive, but tensions arose over compliance with U.S. laws concerning foreign investment. NetEase allegedly asked the Strains to keep their investment "low profile" to avoid scrutiny from The Committee on Foreign Investment in the United States (CFIUS) and even suggested opening branches in Canada or Ireland to facilitate easier investment.
The complaint further details NetEase's alleged ties to the Chinese Community Party, suggesting that NetEase wanted to keep these connections hidden from the U.S. government. It also mentions reports about NetEase CEO Ding Lei's alleged use of the threat of CCP retaliation against Activision Blizzard in 2023 and his immigration plans to the U.S., which could be jeopardized by publicized investments.
As the Strains continued to question and push for regulatory compliance, their relationship with NetEase deteriorated. Financial troubles soon emerged, leading to layoffs and furloughs at Crop Circle Games in early February 2024. The Strains claim that around this time, rumors of fraud and misuse of funds at Crop Circle Games began circulating, which they traced back to NetEase. These rumors allegedly caused other investors to withdraw funding, leading to Prytania Media and its subsidiaries becoming nearly worthless, down from an estimated value of $344 million.
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 unwritten article by Kotaku reporter Ethan Gach that she claimed would have disclosed her personal health struggles. The letter was removed shortly after, and Kotaku never published the article. Possibility Space, another Prytania subsidiary, shut down a week later, with Jeff Strain citing employee leaks to the press as the reason, without mentioning NetEase or the 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 prior valuation.
NetEase responded to the lawsuit with a statement to Polygon, denying the allegations and asserting their commitment to integrity, while expressing confidence that the legal process would vindicate their position and reveal the true reasons behind the Strains' studios' downfall.
