The FBI has unsealed an indictment charging two former executives at MoviePass and its parent company, Helios & Matheson Analytics Inc. (HMNY), with multiple counts of securities and wire fraud.
J. Mitchell Lowe, the CEO of MoviePass at the time, and Theodore Farnsworth, past CEO and Chairman of HMNY, allegedly connived to artificially inflate the stock price of HMNY and bring in new investors through materially false and misleading representations of the companies’ business and operations.
According to the indictment filed Friday, the executives are accused of falsely stating that MoviePass’ $9.95-per-month “unlimited” plan was “tested, sustainable, and would be profitable or break even on subscription fees alone.” Founded in 2011, the subscription-based movie ticketing service promised that by paying a monthly fee, consumers could see as many movies as they desired, with no blackout dates.
The Fed alleges that Farnsworth and Lowe knew this was nothing more than “a temporary marketing gimmick to grow new subscribers,” as they could not actually deliver on this promise. Thus, they artificially inflated HMNY’s stock price and caused MoviePass to lose money.
The indictment also alleges that the executives falsely claimed to use technologies – such as “big data” and “artificial intelligence” – that enabled them to analyze and make money off of user data collected from MoviePass. In reality, they did not possess these technologies, nor did they generate revenue from user data.
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Another allegation is that Lowe and Farnsworth falsely claimed that MoviePass’s “cost of goods, as reflected in the number of tickets each subscriber purchased using their subscription, was naturally declining over time consistent with their stated expectations.” The indictment says that the executives secretly instructed MoviePass employees to block subscribers from fully utilizing their “unlimited” plan in order to make up for the company’s losses.
Farnsworth and Lowe have both been charged with a single count of securities fraud and three counts of wire fraud. They face a maximum penalty of 20 years in prison for each charge.
Farnsworth and Lowe couldn’t be reached for comment.