Federal prosecutors charge ex-CEOs of MoviePass, parent company in alleged fraud scheme

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  • The former CEOs of MoviePass and its parent company have been charged with fraud, according to the Justice Department.
  • The indictment alleges that Theodore Farnsworth and Mitchell Lowe misled investors into knowing that the company’s unlimited film offering was unsustainable at $9.95 a month.
  • The former CEOs are charged with one count of securities fraud and three counts of wire fraud. If found guilty, they each face a maximum sentence of 20 years in prison.

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The former executives of MoviePass and its parent company were charged with fraud, according to a federal indictment released Friday.

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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 a movie subscription service to boost its parent company’s share price 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, sustainable and profitable, knew that the MoviePass offering was a marketing gimmick and that its parent company did not have the technology or opportunities to monetize subscriber data.

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The company also failed to conduct the rigorous marketing testing it claims has been completed. The Department of Justice stated.

MoviePass’s popularity skyrocketed in 2017 due to the seemingly too good-to-be-true unlimited movie pass, which initially offered customers one movie voucher per day for $30-$40 a month. It was hoped that the majority of subscribers would not actually use the service regularly, just like how gyms can offset cheap monthly fees due to no-shows of subscribers.

However, many MoviePass subscribers began using the service too frequently, and the company began to lose money quickly. To stay afloat, MoviePass began to limit the number of available titles among other restrictions. The service went through several iterations of prices and offerings before closing.

Without the support of movie theaters that had abandoned the MoviePass business model and invaded the industry, the company was forced to close in September 2019.

Co-founder Stacey Spikes took back ownership of the company in late 2021, but the 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 of $10, $20 and $30 respectively, with each tier having a set amount of credits that can be used to redeem movie tickets.

Lowe and Farnsworth do not appear to be involved with the new iteration of MoviePass.

According to the DOJ document, the couple also allegedly knew that the price of the MoviePass unlimited plan would not be enough to offset the damages. The indictment says the plan was to attract new subscribers, increase the value of Helios & Matheson shares and attract new investors.

The news of the indictment comes after the SEC in September accused Low, Farnsworth and another former MoviePass executive, Khalid Itum, of misrepresentation and falsification of records.

“The indictment reiterates the same allegations made by the Securities and Exchange Commission in the Commission’s recent Sept. 27 complaint against Mr. Farnsworth in respect of matters that were made public nearly three years ago and received extensive media coverage,” Chris Bond said. , Farnsworth spokesman 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 charges in the indictment until his acquittal is reached.”

Representatives for Lowe did not immediately respond to a request for comment.

The Justice Department said Friday that Farnsworth and Lowe allegedly falsely claimed that the number of tickets MoviePass subscribers purchased as part of their subscription decreased over time. Instead, the couple ordered employees to use tactics to prevent subscribers from using their unlimited service, according to prosecutors.

The former CEOs are charged with one count of securities fraud and three counts of wire fraud. If found guilty, they each face a maximum sentence of 20 years in prison.

Credit: www.cnbc.com /

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