Ex-Netease Execs Sue for $900M, Allege Investor Fraud

Jeff Strain, co-founder of ArenaNet and co-creator of State of Decay, together with his wife Annie Strain, has filed a $900 million lawsuit against NetEase, the developer behind Marvel Rivals. The plaintiffs allege that NetEase spread rumors among investors claiming the Strains engaged in fraudulent activities through their recent venture, Prytania Media Group—ultimately devaluing the studio and forcing its shutdown.

According to an amended complaint reviewed by IGN and initially filed in January in Louisiana’s civil district court before moving to federal court, the case begins with a strong allegation: "This lawsuit centers on the destruction of two gaming industry veterans’ careers and their company by a Chinese entity attempting to evade U.S. legal requirements."

The Strains’ complaint lays out a convoluted narrative that still leaves many questions unanswered from last year’s sudden closure of Prytania Media's subsidiaries. According to the filing, NetEase made an early investment in one of Prytania’s subsidiaries, Crop Circle Games, acquiring a 25% stake and placing Han Chenglin on the board alongside Jeff and Annie Strain, who occupied the other two seats.

Initially, the relationship reportedly flourished. Over time, however, NetEase leadership and representatives voiced concerns over compliance with U.S. foreign investment laws, including in at least one email asking the Strains to maintain a "low profile" regarding the investment to sidestep rules enforced by the Committee on Foreign Investment in the United States (CFIUS). The complaint further alleges that NetEase urged the opening of branches in Canada or Ireland to simplify its continued investment.

A substantial part of the complaint seeks to detail NetEase's alleged ties to the Chinese Communist Party, implying the company aimed to conceal these connections from U.S. authorities. It also points to Tencent’s U.S. designation as a "Chinese military company" earlier this year, as well as reports that NetEase CEO Ding Lei allegedly threatened Activision Blizzard with potential CCP retaliation during 2023 licensing talks.

Additionally, the Strains claim they were informed that Lei was in the process of immigrating to the United States and had purchased a $29 million Bel-Air mansion from Elon Musk in 2020. Lei reportedly expressed worries that publicity surrounding NetEase’s U.S. investments might jeopardize his immigration status.

The plaintiffs state that as they continued to seek clarity and push for regulatory compliance, their relationship with NetEase deteriorated. Financial issues appear to have emerged during this period as well—by early February 2024, Crop Circle Games laid off part of its staff and furloughed others. Sources close to the studio told IGN at the time that employees felt considerable confusion, fear, and later anger over how the situation was managed.

According to the Strains’ complaint, on February 22, Jeff Strain received a text from a managing director at a venture firm invested in Prytania, stating that Crop Circle Games was being accused of fraud and financial misuse. The Strains assert they traced these rumors back to NetEase. In a March board meeting, Han Chenglin reportedly admitted telling colleagues, "I'm really surprised the company is running out of runway so quickly," implying this may have sparked the rumor.

Following this incident, the Strains allege that other investors withdrew funding from Prytania and new investment became impossible to secure. The complaint states that, in the weeks and months that followed, Prytania Media and its subsidiaries—once valued at $344 million—were rendered "worth nearly nothing." By the end of March last year, Prytania closed Crop Circle Games entirely.

In April, Annie Strain published an extensive letter on the company’s website attributing the firm’s difficulties to the industry’s economic downturn and a lack of funding. She also repeatedly referenced an alleged article by Kotaku reporter Ethan Gach that she claimed would disclose her personal health issues without her consent. The letter was quickly removed, and Kotaku never published the piece in question. A week later, Prytania subsidiary Possibility Space also shut down, with Jeff Strain blaming leaks to the press by employees. Neither NetEase nor allegations of fraud were referenced publicly at the time.

Jeff Strain, Annie Strain, and Prytania Media are now suing NetEase for defamation, unfair trade practices, tortious interference with business relations, and negligence. They are seeking over $900 million in damages—triple the company’s previous valuation.

NetEase provided Polygon with the following statement in response to the lawsuit:

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.