NetEase Faces $900M Lawsuit Over Fraud Allegations

Jeff Strain and Annie Strain, co-founders of ArenaNet and co-creator of State of Decay, are suing NetEase, the creator of Marvel Rivals, for $900 million. Their lawsuit alleges NetEase deliberately devalued and ultimately caused the closure of their studio, Prytania Media Group, by spreading false rumors of fraud to investors.

Filed initially in Louisiana state court and subsequently moved to federal court, the amended complaint accuses NetEase, a Chinese entity, of intentionally destroying the Strains' careers to avoid U.S. legal compliance. The complaint details a complex narrative surrounding the unexpected closure of Prytania Media's subsidiaries. NetEase held a 25% stake in Crop Circle Games, a Prytania subsidiary, with a representative on the board. Initially, the relationship was positive. However, the Strains allege NetEase expressed concerns about U.S. foreign investment laws, requesting a "low profile" to circumvent CFIUS regulations and suggesting the establishment of branches in Canada or Ireland to facilitate investment.

A significant portion of the complaint focuses on NetEase's alleged ties to the Chinese Communist Party (CCP), suggesting a motive to conceal these connections from the U.S. government. The complaint cites the U.S. government's designation of Tencent as a "Chinese military company" and reports of NetEase CEO Ding Lei allegedly leveraging 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 concerns about his U.S. immigration status being jeopardized by publicized NetEase investments.

The Strains contend that persistent questioning about regulatory compliance led to a breakdown in their relationship with NetEase. Crop Circle Games experienced financial difficulties, resulting in layoffs and furloughs in early February 2024, causing internal confusion and anger. The complaint alleges that on February 22nd, Jeff Strain received a text from a venture firm managing director accusing Crop Circle Games of fraud, a rumor traced back to NetEase. In a March board meeting, NetEase's representative admitted to making a comment that contributed to the rumor.

Following this, investors withdrew funding from Prytania, and the company failed to secure new investment. Prytania Media and its subsidiaries, once valued at $344 million, became virtually worthless. Crop Circle Games closed in March 2024. In April, Annie Strain published a since-removed letter attributing the company's struggles to the economic downturn and funding difficulties, also mentioning an un-published Kotaku article. Subsequently, another Prytania subsidiary, Possibility Space, also closed. NetEase and allegations of fraud were not mentioned in these public statements.

Jeff and Annie Strain, along with Prytania Media, are suing NetEase for defamation, unfair trade practices, tortious interference, and negligence, seeking over $900 million in damages. NetEase denies the allegations and asserts its intention to vigorously defend itself.