US prosecutors have brought fraud charges against the former chief executive of MoviePass and the chair of its parent company, accusing them of misleading investors about the viability of a subscription service offering customers “unlimited” cinema tickets for $9.95 a month.
The company, which had amassed 3mn subscribers by mid-2018, told investors that its plan was sustainable and would eventually generate a profit even as it internally considered the move a “temporary marketing gimmick”, the Department of Justice said on Friday.
Ted Farnsworth, who led MoviePass-owner Helios and Matheson at the time, and Hollywood executive Mitch Lowe, who ran the app, sought to artificially inflate Helios and Matheson’s share price, prosecutors alleged, by making false claims about the technology behind the service which they said would yield valuable information on consumer behavior.
They told investors that artificial intelligence would help gather information from MoviePass subscribers, even as they knew the company had no such capabilities, the DoJ added.
“The defendants deliberately and publicly engaged in a fraudulent scheme designed to falsely bolster their company’s stock price,” said FBI assistant director Michael Driscoll.
“Attempted scams of this nature erode the public’s faith in our financial markets,” he added.
In the face of mounting losses, Farnsworth and Lowe also allegedly told employees to curb subscribers’ use of the app and limit the number of showings available.
Customers had complained in 2018 of being blocked from booking certain screenings for the latest Impossible mission movie even as participating cinemas’ own websites showed availability, which MoviePass blamed on technical issues.
The indictment against Farnsworth and Lowe comes just a few weeks after the Securities and Exchange Commission sued former MoviePass executives for allegedly misrepresenting its business model. Farnsworth and Lowe and their companies also settled with the Federal Trade Commission in 2021.
MoviePass announced its closure in September 2019 after failing to secure additional funding, leading shares in Helios and Matheson to fall by about 10 per cent.
Helios and Matheson filed for bankruptcy in 2020, but MoviePass founder Stacy Spikes has since bought the rights for 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 running MoviePass earlier this year, in which he admitted to making mistakes such as growing the app’s user base too quickly.
If found guilty, Farnsworth and Lowe, who are each facing one count of securities fraud and three counts of wire fraud, could be handed decades-long prison sentences.
A spokesman for Farnsworth said the DoJ’s indictment “repeats the same allegations” made by the SEC “concerning matters that were publicly disclosed nearly three years ago and widely reported by the news media”.
He added that the executive “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”.
A lawyer representing Lowe in a civil case did not immediately respond to a request for comment.