Two former leaders of the company MoviePass and its parent entity, Helios and Matheson Analytics, are facing federal charges for allegedly defrauding investors amid's dramatic public downfall several years ago.
An indictment unsealed on Friday criminally charged Theodore Farnsworth, the former CEO of Helios and Matheson, and Mitchell Lowe, the former CEO of MoviePass, with one count each of securities fraud and three counts each of wire fraud, the Justice Department said.
Farnsworth, 60, and Lowe, 70, are facing similar allegations in a civil suit filed against them by the Securities and Exchange Commission in September. They reached a settlement with the Federal Trade Commission last year over another complaint alleging they fraudulently prevented MoviePass subscribers from using the app's services as advertised, while failing to protect their personal data.
The latest federal indictment accuses Farnsworth and Lowe of deliberately engaging in an alleged scheme to deceive investors of Helios and Matheson, saying both executives appealed to, and secured, new financiers by sharing misleading and "materially false" information about the company's business model and operations in order to inflate its stock prices artificially, according to the Justice Department.
Chris Bond, a spokesperson for Farnsworth, said the former executive's legal team plans "to contest the allegations in the indictment until his vindication is achieved" in a statement to CBS News on Sunday.
"The indictment repeats the same allegations made by the Securities and Exchange Commission in the Commission's recent complaint filed on September 27th against Mr. Farnsworth, concerning matters that were publicly disclosed nearly three years ago and widely reported by the news media," Bond said. "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."
The indictment comes about five years after MoviePass, which first launched in 2011, was acquired by Helios and Matheson and later announced a significant drop in the app's monthly subscription fee — just $9.95 a month to see an unlimited number of movies — in a bid to grow membership. Although the move did exponentially increase MoviePass' subscriber base, it cut profits significantly, and the company filed for bankruptcy protection in 2020. The service relaunched this year with a new advertising component.
"As alleged, the defendants deliberately and publicly engaged in a fraudulent scheme designed to falsely bolster their company's stock price," said Michael J. Driscoll, the assistant director in charge of the FBI New York field office, in a statement included with the Justice Department's announcement outlining the allegations.
"Attempted scams of this nature erode the public's faith in our financial markets," the statement added. "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."
The federal indictment alleged that Farnsworth and Lowe knew that the $9.95 MoviePass "unlimited" plan was unsustainable and "a temporary marketing gimmick to grow new subscribers" that would not produce enough revenue, despite claiming that the model had been tested and "would be profitable or break even on subscription fees alone," the Justice Department said.
Prosecutors also accused both former CEOs of making false and deceiving statements about MoviePass' revenue streams outside of subscription fees — like artificial intelligence platforms that Farnsworth and Lowe purportedly claimed were being used to collect and monetize subscribers' data — alleging there were none. The indictment also alleged that Farnsworth and Lowe directed employees to block some subscribers from accessing MoviePass services in order to feed a false claim that the company's cost of goods was "naturally declining," the Justice Department said.
The FBI New York field office is investigating this case, the Justice Department said. If convicted of the charges, Farnsworth and Lowe could face maximum sentences of 20 years in prison for each each count.
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