A little over a month after the U.S. Securities and Exchange Commission sued two former top execs at MoviePass and its parent company, Helios + Matheson, for fraud, the Justice Department today unsealed an indictment charging those same executives, Theodore Farnsworth and J. Mitchell Lowe, each with one count of securities fraud and three counts of wire fraud. If convicted, they face a maximum penalty of 20 years in prison on each count. At the time of the alleged fraud, Farnsworth was Helios + Matheson’s Chairman and CEO, and Lowe was MoviePass’s CEO.
The duo “allegedly engaged in a scheme to defraud investors through materially false and misleading representations relating to HMNY and MoviePass’s business and operations to artificially inflate the price of HMNY’s stock and attract new investors,” according to the indictment.
Specifically, the indictment alleges Farnsworth and Lowe “falsely claimed that MoviePass’s $9.95 ‘unlimited’ plan – in which new subscribers could see ‘unlimited’ movies in theaters with no blackout dates for a flat monthly fee of $9.95 – was tested, sustainable, and would be profitable or break even on subscription fees alone. Farnsworth and Lowe allegedly knew that the $9.95 ‘unlimited’ plan was a temporary marketing gimmick to grow new subscribers.”
The digital movie ticketing firm sought to popularize fixed-price ticket buying, a tool widely used in many international markets, but ran afoul of major exhibitors and then its customers after deciding to offer an unsustainable monthly price. After slashing the monthly price from its previous levels of $40 to $50 a month, the company still had to fulfill customer orders for tickets. An inability to satiate surging demand led to outages and disruptions of service at the height of the 2019 summer box office season.