Two former MoviePass Inc. executives misled investors by promising they could turn a profit, charging theatergoers just $9.95 a month for unlimited tickets, the US Securities and Exchange Commission alleged in a lawsuit.
The agency charged Theodore Farnsworth and Mitch Lowe with securities fraud in a complaint filed late Monday in federal court in Manhattan. Farnsworth was the former chief executive of analytics firm Helios and Matheson Analytics Inc., which bought MoviePass in 2017 and ran it until it collapsed into bankruptcy in 2020. The SEC claims Farnsworth and Lowe made misstatements in financial filings and in the press regarding whether MoviePass could be profitable at its new, $9.95 per month subscription price. Faced with debilitating negative cash flows - rather than telling the public the truth - Farnsworth and Lowe devised fraudulent tactics to prevent MoviePass users from using the service, and falsely informed the public that usage had declined naturally or due to measures the company had employed to combat subscribers purported violations of MoviePass's terms and conditions of service, according to the complaint.
The complaint concerns matters that are subject to an investigation that the company and other news outlets publicly disclosed nearly three years ago, and Mr. Farnsworth's legal team will maintain the challenge to the complaint, said Chris Bond, a spokesman for Ted Farnsworth. The SEC also named former MoviePass Vice President Khalid Itum as a defendant in the suit. It accused him of submitting false invoices to Helios and MoviePass and pocketing more than $310,000 from the companies.
Adam Fee, Itum's lawyer, said in an emailed statement that Khalid Itum was unfairly targeted by the SEC in this complaint. Khalid is proud of the character and integrity he displayed throughout his time at MoviePass, and we look forward to challenging the SEC's meritless allegations against him in court. Last year, Helios and MoviePass settled the Federal Trade Commission allegations that it misled customers and failed to secure their personal information.
The theater subscription service will be relaunched this month, according to Stacy Spikes, co-founder of MoviePass.
The case is Securities Exchange Commission v. Farnsworth, 22 cv - 08226, U.S. District Court, Southern District of New York Manhattan