Former MoviePass CEOs Ted Farnsworth and Mitch Lowe and the ticketing app’s former parent company Helios & Matheson have been charged by the Department of Justice in a securities fraud case Friday, alleging that the executives “engaged in a scheme to defraud investors” and lied about MoviePass’ operations in order to inflate the parent company’s stock price and attract new investors.
Farnsworth and Lowe are each charged with one count of securities fraud and three counts of wire fraud. If convicted, they each face a maximum penalty of 20 years in prison on each count.
Farnsworth additionally surrendered himself to authorities in Washington D.C. on Friday following the charges, IndieWire has learned.
According to court documents, the Department of Justice indictment says Farnsworth and Lowe falsely claimed that MoviePass’ $9.95 “unlimited” plan – in which new subscribers could see unlimited movies in theaters with no blackout dates for a flat monthly fee – was tested, sustainable, and would be profitable or break even on subscription fees alone. But the indictment claims that Farnsworth and Lowe allegedly knew that the unlimited plan was just a temporary marketing gimmick to grow new subscribers and inflate Helios & Matheson’s stock price, all while the company lost money from the unlimited plan. What’s more, the indictment claims that Farnsworth and Lowe lied about having forms of making money beyond just subscription fees for the service, nor did they have access to “big data” and “artificial intelligence” technology in order to analyze and monetize data collected from subscribers.
Finally, Farnsworth and Lowe allegedly directed MoviePass employees to implement tactics to prevent its customers from actually being able to see unlimited movies, despite publicly saying the cost of goods, as reflected in the number of tickets each subscriber purchased using their subscription, was naturally declining over time.
“The Department of Justice is committed to protecting the public from being exploited by criminals for their personal profit,” said Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division. “As these charges make clear, the Department, together with our law enforcement partners, will hold corrupt C-Suite executives who engage in securities fraud accountable for their actions.”
“As alleged, the defendants deliberately and publicly engaged in a fraudulent scheme designed to falsely bolster their company’s stock price,” said Assistant Director in Charge Michael J. Driscoll of the FBI New York Field Office. “Attempted scams of this nature erode the public’s faith in our financial markets. The FBI is committed to ensuring these types of frauds and swindles are uncovered and the perpetrators are held responsible for their actions in the criminal justice system.”
Chris Bond, a spokesman for Farnsworth, told IndieWire that the DoJ’s charges are the same ones made by the SEC in a recent complaint filed on September 27 and concerned issues that were “were publicly disclosed nearly three years ago and widely reported by the news media.”
“As with the SEC filing, Mr. Farnsworth is confident that the facts will demonstrate that he has acted in good faith, and his legal team intends to contest the allegations in the indictment until his vindication is achieved,” Bond said.
Lawyers for Lowe did not immediately respond to a request for comment.
Farnsworth and Lowe took over as MoviePass CEOs in 2017 and found themselves exploding with users after slashing the app’s prices from $50 to $9.95 per month for its unlimited movie tickets subscription, reaching as many as 3 million users, all before flaming out in dramatic fashion with subscribers experiencing buggy service and extremely limited availability for movie times to use their unlimited plan. The company ultimately shut down in 2019, and Helios & Matheson declared bankruptcy shortly thereafter.
MoviePass’ original founder Stacy Spikes, who was pushed out of the company after it was acquired by Farnsworth and Lowe, acquired the rights to MoviePass and is relaunching the beta version of the app as early as next week. Spikes previously told IndieWire that there was still enormous interest in the ticketing service and that signups for the waitlist to download the new app and sign up ultimately crashed the website. The service is now relaunching with a number of independent and smaller movie theater chains collaborating. And subscriptions are available at multiple pricing tiers for which users earn credits that can be applied to various screenings at both peak and non-peak hours, and it also will have other tech that will allow users to earn additional credits by engaging with ads and other content.