Jeff and Annie Strain Sue NetEase for $900M, Alleging Fraud Misrepresentation to Investors

Jeff Strain and his wife Annie Strain, both renowned figures in the gaming industry, have initiated 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, Louisiana, and later moved to federal court, alleges that NetEase's actions led to the devaluation and eventual closure of their studio, Prytania Media Group. According to the Strains, NetEase spread rumors among investors that they had committed fraud with Prytania Media Group, severely impacting their business.

The complaint begins with a strong statement: "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." It details the Strains' journey with NetEase, starting with a seemingly positive relationship when NetEase invested in Prytania's subsidiary, Crop Circle Games, acquiring a 25% stake and placing Han Chenglin on the board alongside Jeff and Annie Strain.

However, tensions arose as NetEase allegedly expressed concerns about compliance with U.S. laws on foreign investment. The complaint mentions an email from NetEase asking the Strains to keep their investment "low profile" to avoid scrutiny from The Committee on Foreign Investment in the United States (CFIUS). They were also reportedly encouraged to open branches in Canada or Ireland to facilitate NetEase's investment.

The Strains further allege that NetEase wanted to conceal its ties to the Chinese Communist Party (CCP) from the U.S. government. They reference Tencent's designation as a "Chinese military company" by the U.S. government and reports of NetEase CEO Ding Lei allegedly using the threat of CCP retaliation against Activision Blizzard in 2023. Additionally, they claim that Lei was in the process of immigrating to the U.S. and purchasing a $29 million Bel-Air mansion from Elon Musk, expressing concerns that publicizing NetEase's investments could jeopardize his immigration.

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 situation escalated when Jeff Strain received a text from a managing director of a venture firm invested in Prytania, alleging fraud and misuse of funds at Crop Circle Games. The Strains traced these rumors back to NetEase, with Han Chenglin admitting in a board meeting that he was surprised at the company's rapid depletion of funds.

Following these allegations, other investors withdrew funding from Prytania, and the company struggled to attract new investors. By the end of March, Crop Circle Games was shut down, and Prytania's value 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 alleged article by Kotaku reporter Ethan Gach that she claimed would have disclosed her personal health struggles without her consent. The letter was soon removed, and Kotaku did not publish the article. A week later, Prytania subsidiary Possibility Space closed, with Jeff Strain citing employee leaks to the press as the reason, 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 prior valuation.

In response, NetEase issued a statement to Polygon, denying the allegations and affirming their commitment to integrity: "The allegations by Prytania Media and its founders Annie and Jeff Strain are wholly without merit, and we emphatically deny and will vigorously defend ourselves against them. Our record as a global gaming company speaks for itself, and we remain committed to conducting business with integrity. We are confident that the legal process will vindicate our position and shed light on the real reasons behind the demise of the Strains’ studios."