The former CEOs of MoviePass and its parent company were indicted on securities fraud charges for misleading investors and making false statements about how successful the movie subscription service was, the Department of Justice announced Friday.
Theodore Farnsworth, 60, former CEO of parent company Helios & Matheson, and J. Mitchell Lowe, 70, former CEO of MoviePass, allegedly schemed to inflate their stock price and attract investors by making false and misleading statements about how well the business was doing, federal prosecutors said. Each of them has been charged with one count of securities fraud and three counts of wire fraud and faces a maximum penalty of 20 years in prison on each count if convicted.
Founded in 2011, MoviePass allowed users to attend a set number of movies in exchange for paying a monthly subscription fee. In 2017, they dropped their subscription fee to just $9.95 a month to see unlimited movies, and saw millions of people sign up.
For movie lovers, it was a deal that seemed too good to be true. In April 2018, the company disclosed to regulators that it had been losing around $20 million a month for several months. Later that year, the company borrowed $5 million after claiming it could not pay its bills. The company eventually shut down in 2019, claiming that the efforts to recapitalize the business were unsuccessful.
Farnsworth and Lowe knew MoviePass's $9.95 unlimited plan was a "temporary marketing gimmick to grow new subscribers," a DOJ press release said. Yet prosecutors allege that in 2017, they both falsely claimed that it had been market tested and would be sustainable and profitable.
The two men also claimed that other revenue streams would help make the company profitable and self-sufficient, yet they knew these did not exist, authorities said. And they also knew that MoviePass's parent company didn't have the technology or capability to monetize subscriber data, as they claimed to be able to do, the DOJ said.
"The Department of Justice is committed to protecting the public from being exploited by criminals for their personal profit," Assistant Attorney General Kenneth A. Polite Jr. said in a statement.
Chris Bond, a spokesperson for Farnsworth, said in a statement to CBS News that the former executive's legal team plans "to contest the allegations in the indictment until his vindication is achieved."
Last year, MoviePass agreed to settle Federal Trade Commission accusations that it knowingly deceived customers and exposed their personal data, among other things.
After shutting down in 2019, MoviePass plans to relaunch next week in Chicago as MoviePass 2.0 beta, per its website. It is being run by its original cofounder, Stacy Spikes, who had sold a majority stake in the company before repurchasing it in 2021.
The new service will have three pricing tiers: $10, $20, and $30.