Former MoviePass CEOs Accused of Conspiring to Scam Investors

(Bloomberg) – Two former executives of MoviePass Inc. have been charged with securities fraud and wire fraud for allegedly conspiring to defraud investors at the bankrupt company’s parent company.

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Theodore Farnsworth, 60, of Miami, and J. Mitchell Lowe, 70, of Miami Beach, are accused of making false statements about Helios & Matheson Analytics Inc., which bought MoviePass in 2017 and ran it until it filed for bankruptcy in 2020. Farnsworth is the former CEO of Helios & Matheson, while Lowe served as CEO of MoviePass from 2016 to 2020.

Prosecutors allege the pair told investors that MoviePass’s plan to let subscribers see unlimited movies in theaters for $9.95 was tested, was sustainable and would be profitable – all the while knowing it it was simply a “temporary marketing gimmick” to win new customers, artificially inflate the stock price and attract investors.

They are also accused of falsely claiming that the company has technology that allows it to generate revenue by analyzing and monetizing the data it collects from subscribers, and of making misleading statements “about the positive impact that multiple revenue streams (other than subscription fees) were having”. on the profitability and self-sufficiency of MoviePass.

“As these charges make clear, the Department, together with our law enforcement partners, will hold corrupt C-Suite executives who engage in securities fraud accountable for their actions,” Assistant Attorney General Kenneth A. Polite Jr. said in a statement.

The charges come just over a month after Farnsworth and Lowe were sued by the Securities and Exchange Commission over similar allegations. Helios and MoviePass settled Federal Trade Commission allegations last year that they misled customers and failed to secure their personal information. The company announced plans to relaunch the service in September.

“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. , spokesperson for Farnsworth. “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 such time as may his vindication be obtained.”

William F. McGovern, an attorney for Lowe, declined to comment on the charges.

MoviePass became hugely popular when it introduced the subscription plan in August 2017. By June 2018 it had peaked at 3 million members, but its parent company went bankrupt in January 2020 when operating losses proved unsustainable.

Both men face up to 20 years in prison on each count if convicted.

(Updates with defense attorney declining to comment in eighth paragraph.)

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Robert D. Coleman