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Former MoviePass CEOs Sued by SEC for Allegedly Misleading Investors Over $10/Month Profit Plan

MoviePass filed for bankruptcy in 2020 before re-launching under new leadership in August 2022.

MoviePass

MoviePass

AP

The former MoviePass leadership is not getting a pass on fraud charges.

The Securities and Exchange Commission (SEC) filed a lawsuit against former MoviePass CEO Mitch Lowe and Ted Farnsworth, the former CEO of MoviePass’ parent company, Helios and Matheson Analytics (HMNY), for allegedly misleading investors under the $9.99 per month moviegoing subscription.

As reported by Insider, the SEC filing claimed Lowe and Farnsworth “devised fraudulent tactics” to hide information and “falsely and misleadingly” led the public to believe their site was unsuccessful in subscribers to save money.

“Faced with debilitating negative cash flows — rather than tell the public the truth — Farnsworth and Lowe devised fraudulent tactics to prevent MoviePass’s heavy users from using the service, and falsely and misleadingly informed the public that usage had declined naturally or due to measures the company had employed to combat subscribers’ purported violations of MoviePass’s terms and conditions of service,” the complaint stated.

The lawsuit named ex-MoviePass Vice President Khalid Itum as a defendant. Itum is also accused of submitting false invoices and receiving more than $310,000 from both MoviePass and HMNY.

“The complaint concerns matters subject to an investigation that the company and other news outlets publicly disclosed nearly three years ago, and Mr. Farnsworth’s legal team will maintain the challenge to this complaint,” Chris Bond, a spokesperson for Ted Farnsworth, told Insider. “Mr. Farnsworth continues to maintain that he has always acted in good faith in the best interests of his companies and shareholders.”

Itum’s attorney Adam Fee of Milbank LLP told IndieWire that the former CEO has been “unfairly targeted by the SEC in this complaint. Khalid is proud of the character and integrity he displayed throughout his time at MoviePass, and we look forward to challenging the SEC’s meritless allegations against him in court.”

Lowe’s attorneys at Kobre & Kim, LLP issued a statement to IndieWire in response to the SEC filing.

“Today the SEC filed a civil complaint against our client, Mitch Lowe, in the U.S. District Court. The allegations in the complaint relate to Mitch’s time at MoviePass, particularly 2017-2018,” the statement read. “We disagree with the SEC’s characterization of Mitch’s conduct, including allegations about statements made about the progress in building MoviePass. Bringing new commercial concepts to the market can be disruptive and uneven. Mitch remains proud of what was accomplished at MoviePass and intends to work within the legal process to resolve these allegations.”

MoviePass filed for bankruptcy in 2020 after launching a $9.99 per month subscription in 2017 allowing people to see a movie a day. The service had initially launched in 2011, but when it moved to the $9.99 one movie per day model in 2017, within two days, subscriptions went from 20,000 to 100,000 users, ultimately capping at more than 3 million subscribers in 2018. After filing for bankruptcy, the company said it was under pending investigations by the Federal Trade Commission, SEC, four California district attorneys, and the New York attorney general. Farnsworth and Lowe settled in June 2021 with the FTC and reached a $400,000 settlement with the California district attorneys.

MoviePass has since relaunched in August 2022 under original founder Stacy Spikes, who parted ways with the company in 2018. The subscription price tiers include $10, $20, and $30 options. Each subscription option provides credits to cash in each month to see movies, but unlike MoviePass in its $9.99-per-month concept, there is no option for unlimited viewing. The beta version of the site and its waiting list crashed with over 463,000 subscribers the first day.

“It’s a good problem to have,” MoviePass founder and CEO Spikes exclusively told IndieWire. “We are drinking from the firehose.”

As for the revamped site, Spikes added, “It’s much more of a marketplace. Before, you never saw the math behind the scenes.”

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