Game publisher blames NetEase leaks for implosion in $900M lawsuit

Prytania Media owners Annie and Jeff Strain are suing NetEase for defamation, unfair trade practices, and interference with business relations, which the lawsuit says led to the destruction of the company and its multiple subsidiaries: Crop Circle Games, Possibility Space, Fang & Claw, and Dawon Entertainment. Each of these studios shut down in 2024, and the Strains laid off all their employees; in the case of both Crop Circle and Possibility Space, the Strains blamed the closure on staff allegedly leaking information about their studios to the press (and in particular, an unpublished Kotaku story about Possibility Space) and an inability to get funding.

NetEase, for its part, was an investor in Crop Circle Games. Per documents filed in court, Prytania Media owned approximately 75% of that particular subsidiary, and NetEase owned 25%. Both Annie and Jeff Strain resigned from their positions within the studio when filing the lawsuit.

The lawsuit, which Polygon has reviewed, was filed in January in Louisiana state court, but moved to federal court in March. In a letter sent to NetEase CEO Ding Lei in January, Steven Griffith, Jr., representing Prytania Media and the Strains, claimed that NetEase “spread false and defamatory statements that caused the demise of Prytania Media.” In the lawsuit, he said, they’re seeking $900 million in damages, triple an earlier $300 million valuation of the company. Griffith also alleged that NetEase, and in particular a NetEase employee named Chenglin Han, spread “defamatory rumors” that suggested Prytania Media was engaging in financial fraud. The Strains blame NetEase for any issues, suggesting that NetEase wasn’t interested in complying with the United States Department of the Treasury regulations.

“I can share details in our next call, but the high level message is we want to keep away from the radar of [the Committee on Foreign Investment in the United States] which can be quite tricky,” Griffith attributed to a NetEase representative in the letter. “Geopolitical stuff is already causing trouble to our business efforts in North America, truth to be told.”

The Strains say they urged NetEase to be compliant with U.S. law regarding its Crop Circle investment, but that NetEase representatives “became increasingly hostile and aggressive.” They assert that NetEase is hesitant to comply with these laws because it’d have to “identify owners and board members that are Members of the [Chinese Communist Party] and their position within the CCP, as well as the existence of its CCP party organizations, it [sic] members, and the control it exerts over NetEase.” The lawsuit also claims NetEase “dodged confirming its compliance” in the U.S. because NetEase executives wanted to emigrate to the U.S., including Lei, who allegedly intended to move into a $29 million mansion purchased from Elon Musk.

The lawsuit alleges that the rumors about financial mismanagement, which eventually spread to the press, were an attempt on the part of NetEase to “silence Prytania Media’s concerns.” The Strains say they learned about these rumors when an investor, Transcend Fund, reached out with concerns of “fraud and misuse of funds” within Crop Circle Games. Andrew Sheppard, the managing director of the fund, allegedly confirmed that the report was from NetEase. From the lawsuit:

NetEase told this gaming company that Crop Circle Games “was investigating fraudulent activities” on several bases. First, it was stated, incorrectly, that “[f]unds had been moved from Crop Circle Games to other subsidiaries without prior consent of relevant stakeholders.” Second, “quarterly financials [were] potentially materially inaccurate.” Lastly, NetEase asserted that “many key appointments [had] been let go” since “the potential leak” of the foregoing inaccurate information.

The Strains further deny that “key employees” were let go because of the leak, “but because of the financial state of the company.” Transcend eventually requested “full access to all financial and audit information.” As the information spread, the Strains said, investors pulled out of discussions with both Crop Circle and Fang & Claw. “One by one, each of Prytania Media’s studios had to be closed,” lawyers wrote in the suit. “Ultimately, Prytania Media itself had to be shut down.”

Possibility Space was shut down in April 2024, preceded by Crop Circle. The other studios that were part of Prytania Media followed. “There was not a single organization of any kind willing to invest in continued game development,” Annie Strain wrote in a now-deleted post on the Crop Circle website. The dissolution of these studios came as a surprise to their employees, who were all laid off without notice, per reports.

Prytania Media was founded by Annie and Jeff Strain in 2021, building off the success of Jeff Strain’s first studio, ArenaNet. ArenaNet was founded in 2000 and is best known for Guild Wars. Jeff Strain moved on to found Undead Labs in 2009 and release State of Decay. Undead Labs was acquired by Microsoft in 2018 and came under fire in 2022 for alleged “sexism, bullying, and burnout,” per a Kotaku report. Before founding these studios, Jeff Strain worked at Blizzard Entertainment on the likes of StarCraft, Diablo, and World of Warcraft.

The Strains’ lawsuit against NetEase has been assigned to a judge in federal court. Polygon has reached out to both sides for comment.