The former executives in charge of MoviePass have been charged with “conspiracy to defraud investors,” according to the Justice Department. J. Mitchell Lowe, the former CEO of MoviePass, and Theodore Farnsworth, the chairman of the service’s former parent firm Helios and Matheson Analytics (HMNY), have been charged with one count of securities fraud and three counts of wire fraud. Federal officials accuse them of making materially false and misleading statements about MoviePass’ operations in news announcements, interviews, and even SEC filings in order to artificially raise HMNY’s stock and attract new investors.
According to recently disclosed court filings, Farnsworth and Lowe reportedly understood from the outset that the company’s $9.95 “unlimited” plan was a gimmick designed to attract new members and, as a result, artificially raise HMNY’s stock prices. They allegedly falsely stated that the business model had been examined for sustainability and that it was conceivable to become profitable only via membership fees, according to the feds.
Furthermore, the executives reportedly stated that HMNY had “big data” and AI technology that could be utilised to generate income for the firm by analysing data from MoviePass members. According to the indictment, they made the assertion while knowing that HMNY lacked the technology and competence to commercialise subscriber data.
Another charge levelled against the CEOs is that they made misleading claims about MoviePass’s profitability from different income sources. According to officials, the company lacked a non-subscription income source that would allow it to be self-sufficient or balance its losses. Farnsworth and Lowe were also accused of using different strategies to deny specific consumers access to their “unlimited” service. If you remember, MoviePass had to settle with the FTC in 2021 over charges that it purposefully invalidated subscriber passwords in order to justify freezing accounts of frequent users.
The SEC filed a fraud lawsuit against MoviePass in September, accusing management of deceiving investors about the feasibility of the company’s $9.95-per-month business plan. MoviePass is back, despite its stormy background and the many claims that the previous executives must still face. Stacy Spikes, the company’s original co-founder, bought it back when HMNY declared bankruptcy. The service reopened on September 5th and now costs users $10 per month for up to three movies, $20 per month for up to four movies, and $30 per month for up to five movies.
Farnsworth and Lowe face a potential sentence of 20 years in prison for each count of securities and wire fraud.
