Possibility Space owners sue NetEase for $900 million over allegations it spread 'false and defamatory rumors' of fraud at the studio that ultimately forced it to close

The strange tale of the sudden 2024 closure of Possibility Space has taken another turn, as studio owners Jeff and Annie Strain have sued NetEase over allegations that it spread "false and defamatory rumors" about another Strain-owned studio, Crop Circle Games, in order to silence concerns about NetEase's compliance with US laws on foreign investment.

The lawsuit seeks $900 million in damages, triple the amount of a prior $300 million valuation of the Strain's Prytania Media, the parent company of Crop Circle Games and other studios.

In a statement provided to Polygon, NetEase says the claims are "wholly without merit," and that it will "vigorously defend" itself.

Possibility Space was shut down very suddenly in April 2024 after Jeff Strain was contacted by Kotaku journalist Ethan Gach with questions about the closure of Crop Circle Games, another studio Jeff and Annie Strain owned under their Prytania Media company. Gach's questions included "non-public information" about Possibility Space's first game, Jeff Strain said in an email sent to studio employees, as well as confidential Prytania Media business information that he said in the email had been provided to Gach by current employees—in other words, a leak.

When Strain disclosed that leak to Possibility Space's unnamed publishing partner, the partner "expressed low confidence they would be willing to invest the additional resources needed to complete the game" the studio had in development." The project was cancelled, and the studio closed. Two other Prytania studios, Fang and Claw, and Dawon, were also subsequently closed.

When he disclosed that information to Possibility Space's unnamed publishing partner, the partner "expressed low confidence they would be willing to invest the additional resources needed to complete the game" the studio had in development. The project was cancelled, and the studio closed. Two other Prytania studios, Fang and Claw, and Dawon, were also subsequently closed.

The lawsuit, filed in January, points the finger at NetEase as the source of the leaks and the damage that resulted: "NetEase caused defamatory rumors to run rife in the gaming investment community during a sensitive time in the industry," including false statements accusing Prytania of "fraudulently mismanaging Crop Circle Games' finances."

"As a result, several critical potential investors and partners in Prytania Media and its subsidiaries, including in particular Crop Circle Games, pulled out, and what was once a $344 million venture is now worth nearly nothing," the suit claims.

NetEase did this, the lawsuit alleges, because of the Strains' concerns over whether the Chinese-based company—a significant investor in Crop Circle Games—was complying with US regulations on foreign investment. Those concerns were elevated by NetEase's connections to the government of China: Declarations to the Committee on Foreign Investment in the United States would require NetEase to identify any government ownership, along with "owners and board members that are members of the CCP [Chinese Communist Party], as well as the existence of its CCP party organization, its members, and the control it exerts over NetEase."

NetEase was reluctant to do so, according to the suit, and even "pushed Prytania Media to aid its avoidance of US regulations," including suggesting that the company should open a branch in Canada or Ireland to facilitate NetEase investment. Annie Strain offered to assist with ensuring compliance on multiple occasions, according to the suit, but was rebuffed each time; at one point, Simon Zhu, general manager of NetEase's Global Games Investment, reportedly said the company did not want to draw attention to its Western investments because NetEase CEO Ding Lei was in the process of immigrating to the US, "and it could threaten his physical safety." The suit notes that Lei purchased a $29 million mansion in Los Angeles from Elon Musk in 2020.

Other NetEase employees, including Zhu, were also "actively attempting to emigrate from China," the suit claims. "Upon information and belief, part of the reason NetEase dodged confirming its compliance with United States regulations was to assist with the emigration process for executives and managers."

The suit claims that Jeff Strain became aware of the allegations of fraud at Crop Circle Games in February 2024, shortly after which NetEase employee Han Chenglin, who also served on the Crop Circle Games board of directors, acknowledged that NetEase was the source of the rumors.

As a result of those rumors, which "quickly spread throughout the entire investment community," negotiations with other investors reportedly dried up: Prytania's studios, and eventually Prytania itself, were ultimately closed for lack of funding.

In a now-deleted open letter announcing the closure of Crop Circle Games in 2024, (available via the Wayback Machine), Annie Strain wrote that "there was not a single organization of any kind willing to invest in continued game development." At the time, she blamed the lack of investor interest on the game in development at the studio, which she said "was just fundamentally out of touch with emerging player tastes and not aligned with the portfolio strategies of any publishers or investors."

"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," NetEase said in its statement to Polygon. "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."