Jeff Strain and Annie Strain, co-founders of ArenaNet and creators behind State of Decay, are embroiled in a high-stakes legal battle with NetEase, the company behind Marvel Rivals. The Strains have filed a lawsuit seeking $900 million, alleging that NetEase's actions led to the devaluation and eventual closure of their studio, Prytania Media Group. The suit claims that NetEase spread false rumors of fraud among investors, causing a significant financial downfall.
The lawsuit, initially filed in the civil district court for the parish of Orleans in Louisiana and later moved to federal court, accuses NetEase of deliberately undermining the Strains' careers and company. According to the complaint, NetEase invested in Prytania's subsidiary, Crop Circle Games, acquiring a 25% stake and placing Han Chenglin on the board alongside the Strains.
Initially, the relationship between Prytania and NetEase was described as positive. However, tensions arose when NetEase allegedly pressured the Strains to keep their investment under wraps to avoid scrutiny from the Committee on Foreign Investment in the United States (CFIUS). The complaint further alleges that NetEase suggested opening branches in Canada or Ireland to facilitate easier investment, hinting at concerns about compliance with U.S. laws.
The Strains' complaint also delves into NetEase's purported connections to the Chinese Communist Party (CCP), suggesting a motive for maintaining secrecy about their investments. They reference Tencent's designation as a "Chinese military company" by the U.S. government and claims that NetEase CEO Ding Lei threatened Activision Blizzard with CCP retaliation in 2023.
Adding to the complexity, the Strains allege that Lei was in the process of immigrating to the U.S. and purchasing a $29 million mansion in Bel-Air from Elon Musk. They claim Lei feared that publicizing NetEase's investments could jeopardize his immigration status.
As the relationship deteriorated, Crop Circle Games faced financial difficulties, leading to layoffs and furloughs in early February 2024. The situation escalated when Jeff Strain received a text from a venture firm director accusing Crop Circle Games of fraud and misuse of funds, which the Strains traced back to NetEase. In a subsequent board meeting, Han Chenglin reportedly expressed surprise at the company's rapid depletion of funds, suggesting this as the origin of the rumors.
Following these allegations, investors began withdrawing funding from Prytania, and the company struggled to secure new investments. By the end of March last year, Crop Circle Games was shuttered, and Prytania's overall 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 funding issues. She also mentioned an unwritten article by Kotaku's Ethan Gach that she claimed would have disclosed her personal health struggles. The letter was removed shortly after, and Kotaku did not publish the article. A week later, Prytania's subsidiary, Possibility Space, closed, with Jeff Strain citing employee leaks to the press as the reason. At the time, neither NetEase nor the fraud allegations were mentioned.
The Strains are now 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, vehemently denying the allegations and asserting their commitment to integrity. They expressed confidence that the legal process would vindicate their position and reveal the true reasons behind the Strains' studios' downfall.
