The former CEO of MoviePass and the executive of its former parent company have been charged with securities fraud for misleading investors about the sustainability and profitability of the company’s daily movie subscription model, according to a statement from the Department of Justice on Friday.
J. Mitchell Lowe, former CEO of the movie ticket subscription service, and Theodore Farnsworth, former executive of now-defunct parent company Helios & Matheson Analytics Inc (HMNY (HMNY)), allegedly conspired to defraud investors of MoviePass by producing “materially false and misleading representations” of business activities to drive up stock prices and attract investors, according to the release.
“As alleged, the defendants deliberately and publicly engaged in a fraudulent scheme designed to falsely underpin their company’s stock price,” Deputy Director-in-Charge Michael J. Driscoll of the FBI’s New York field office said in the statement. communicated. The men each face one count of securities fraud and three counts of wire fraud with a maximum of 20 years in prison. Farnsworth had a first appearance in DC District Court on Friday after voluntarily surrendering.
Lowe and Farnsworth are accused of lying about the subscription’s “unlimited” plan that offered customers the ability to see any number of movies in theaters for a flat monthly fee of $9.95, telling investors that the system has been tested, sustainable and capable of generating profits or at least breaking even. Court documents allege the pair knew the claims were false and used the scheme to boost subscriber numbers and inflate HMNY’s share price while losing money.
Other charges say the pair made fraudulent claims about HMNY technology, using terms such as ‘big data’ and ‘artificial intelligence’ to describe how subscription information was analyzed when no such technology was involved.
The Securities and Exchange Commission filed charges against the former executives in September with similar allegations, and also accused the pair, as well as former MoviePass executive Khalid Itum, of creating or approving fake invoices that produced over $310,000 for Itum’s personal benefit.
“The indictment repeats the same allegations made by the Securities and Exchange Commission in the Commission’s recent complaint filed September 27,” Chris Bond, a spokesman for Farnsworth, said in an email to CNN. “As with the SEC filing, Mr. Farnsworth is confident that the facts will demonstrate that he acted in good faith, and his legal team intends to contest the indictment allegations until until his justification is obtained.”
MoviePass sent shockwaves through Hollywood in 2017, catching consumers on fire with an irresistible offer: $10 to see a movie a day for an entire month. The service quickly grew to 3 million subscribers in less than a year. But MoviePass’ business model was unsustainable at best — and non-existent at worst. The business burned through cash and closed two years after bursting onto the scene.
After ceasing operations in 2019 and filing for bankruptcy in 2020, MoviePass announced its imminent return in August after co-founder Stacy Spikes bought the company out of bankruptcy in 2021. Spikes helped found MoviePass before going on to being evicted in 2018 after selling the business to HMNY. He gave a presentation in New York in February, where he announced the relaunch and acknowledged “a lot of people lost money, a lot of people lost confidence” when MoviePass went bankrupt, according to Variety.
Spikes had intended to get the service back online “on or about September 5,” according to its website, but the site is now teasing a November 9 Chicago launch. Details remain scarce, but the company says the new MoviePass will have three pricing tiers that will cost $10, $20, or $30, depending on the market.
CNN’s Frank Pallotta contributed to this report.
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