US prosecutors have brought fraud charges against the former chief executive of MoviePass and the chairman of its parent company, accusing them of misleading investors about the viability of a subscription service offering customers movie tickets “unlimited” for $9.95 per month.
The company, which had amassed 3 million subscribers by mid-2018, told investors its plan was sustainable and would eventually turn a profit even though it internally viewed the move as a “temporary marketing gimmick,” it said on Friday. the Ministry of Justice.
Ted Farnsworth, who at the time ran Helios and Matheson, owner of MoviePass, and Hollywood executive Mitch Lowe, who ran the app, sought to artificially inflate Helios and Matheson’s stock price, prosecutors say , making false claims about the technology behind the service that they said would provide valuable insights into consumer behavior.
They told investors that artificial intelligence would help gather information from MoviePass subscribers, even though they knew the company lacked such capabilities, the DoJ added.
“Defendants deliberately and publicly engaged in a fraudulent scheme designed to falsely support their company’s stock price,” FBI Deputy Director Michael Driscoll said.
“Scam attempts of this nature erode public confidence in our financial markets,” he added.
In the face of mounting losses, Farnsworth and Lowe also reportedly told employees to limit subscriber use of the app and limit the number of screenings available.
Customers had complained in 2018 that they were prevented from booking certain screenings for the latest Impossible mission movie even as participating theater websites showed availability, which MoviePass attributed to technical issues.
The indictment against Farnsworth and Lowe comes just weeks after the Securities and Exchange Commission sued former MoviePass executives for allegedly misrepresenting its business model. Farnsworth and Lowe and their companies also filed with the Federal Trade Commission in 2021.
MoviePass announced it would be shutting down in September 2019 after failing to secure additional funding, causing shares of Helios and Matheson to plummet around 10%.
Helios and Matheson filed for bankruptcy in 2020, but MoviePass founder Stacy Spikes has since purchased the rights to the MoviePass brand, which he plans to relaunch in select US cities later this year.
Lowe, a former Netflix executive, published a book about his experience with MoviePass earlier this year, in which he admitted to making mistakes such as growing the app’s user base too quickly.
If convicted, Farnsworth and Lowe, who each face one count of securities fraud and three counts of wire fraud, could face decades-long prison terms.
A spokesperson for Farnsworth said the DoJ indictment “repeats the same allegations ‘made by the SEC’ regarding matters that were made public nearly three years ago and widely reported in the media.” .
He added that the executive “is confident that the facts will demonstrate that he acted in good faith, and his legal team intends to contest the allegations in the indictment until his substantiation is obtained”.
An attorney representing Lowe in a civil case did not immediately respond to a request for comment.