Two former MoviePass leaders have been charged with securities fraud for allegedly deceiving investors about the company’s business model and sustainability.
Theodore Farnsworth, the former CEO of parent company Helios and Matheson, and Mitchell Lowe, the former CEO of MoviePass, have been charged with one securities fraud and three counts of electronic fraud.
MoviePass exploded in 2017 after it announced an all you can watch subscription plan, priced at $9.95 per month. The service quickly grew from 20,000 members to more than 3 million – but it drained money and eventually collapsed.
The charges that were open on fridayechoes allegations made by the Securities and Exchange Commission in a civil complaint on September 27.
Both cases claim that Lowe and Farnsworth erroneously claim that their subscription model has been market tested and will be sustainable in the long term.
The indictment also alleges that they falsely claimed that they were using “big data” and “artificial intelligence” to monetize subscriber information, and that they also falsely claimed that they were developing multiple revenue streams and that their costs were declining. In fact, the government claims it has taken steps to try to prevent subscribers from using the service in an effort to stem the bleeding.
In a statement Friday, the FBI described their assertions as a “fraud attempt” intended to prop up the stock price.
“Attempts of fraud of this kind undermine public confidence in our financial markets,” said Michael Driscoll, assistant director of the FBI’s field office in New York. “The FBI is committed to ensuring that these types of fraud and fraud are exposed and that perpetrators are held accountable for their actions in the criminal justice system.”
Farnsworth’s spokesman, Chris Bond, said Farnsworth had acted in good faith and would resist the charges.
“The indictment reiterates the same allegations made by the Securities and Exchange Commission in the Commission’s latest September 27 complaint against Mr Farnsworth, regarding matters that were publicly disclosed nearly three years ago and have been widely reported in the media,” Bond said. . “As with the SEC filing, Mr. Farnsworth is confident that the facts will establish that he acted in good faith, and that his legal team intends to challenge the allegations in the indictment until his acquittal is achieved.”
Lowe recently published a memoir about his business career, which also included stints at Redbox and Netflix.
MoviePass also recently announced that it will be relaunching with a different business plan and new ownership.
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