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Former executives of MoviePass and its parent company have been charged with fraud, according to a federal indictment that was not sealed on Friday.
Theodore Farnsworth, 60, former CEO of Helios & Matheson, and Mitchell Lowe, 70, former CEO of MoviePass, are accused of misleading investors and making false claims about the subscription service to movies to boost the share price of its parent company, Helios & Matheson Analytics.
The indictment alleges that Farnsworth and Lowe in 2017, while describing the company’s $9.95 “unlimited” movie plan as thoroughly tested, durable and profitable, knew the MoviePass offering was a gimmick marketing and that its parent company did not have the technology or ability to monetize subscriber data.
The company also failed to perform the rigorous marketing tests it claims it did, the Justice Department said.
MoviePass exploded in popularity in 2017 due to its seemingly too good to be true unlimited movie pass that initially offered customers a daily movie voucher for $30 to $40 per month. The hope was that most subscribers would not use the service regularly, in the same way that gyms are able to offset cheap monthly fees due to absent subscribers.
However, many MoviePass subscribers began using the service too frequently, and the company began to lose money rapidly. In an effort to stay afloat, MoviePass began limiting the number of titles available among other restrictions. The service went through several iterations of prices and offers before shutting down.
Without the support of theaters, which had balked at MoviePass’ business model and industry intrusion, the company was forced to disband in September 2019.
Co-founder Stacy Spikes took over the company in late 2021, but a new version of MoviePass has yet to officially debut. The company is currently planning beta testing in several cities, including Chicago. The new subscription is expected to offer three price tiers for $10, $20, and $30, respectively, with each tier having a number of credits that can be used to redeem movie tickets.
Lowe and Farnsworth don’t appear to be connected to the new iteration of MoviePass.
According to the DOJ document, the pair also allegedly knew that the price of MoviePass’ unlimited plan wouldn’t be enough to offset the losses. The plan was to develop new subscribers, inflate Helios & Matheson stock and attract new investors, according to the indictment.
News of the indictment comes after the Securities and Exchange Commission in September charged Lowe, Farnsworth and another former MoviePass executive, Khalid Itum, with making false statements and falsifying records.
“The indictment repeats the same allegations made by the Securities and Exchange Commission in the Commission’s recent complaint filed September 27 against Mr. Farnsworth, regarding matters that were made public nearly three years ago and widely reported in the media,” said Chris Bond. , a spokesperson for Farnsworth in a statement. “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.”
Representatives for Lowe did not immediately respond to request for comment.
On Friday, the Justice Department said Farnsworth and Lowe allegedly incorrectly claimed that the number of tickets purchased by MoviePass subscribers as part of their subscription was decreasing over time. Instead, the pair had ordered employees to implement tactics to block subscribers from using their unlimited service, prosecutors said.
The former CEOs are charged with one count of securities fraud and three counts of wire fraud. If convicted, they each face a maximum sentence of 20 years in prison.
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