Two former leaders of MoviePass have been indicted on securities fraud charges for allegedly deceiving investors about the company’s business model and sustainability.
Theodore Farnsworth, the former CEO of parent company Helios & Matheson, and Mitchell Lowe, the former CEO of MoviePass, were each charged with one count of securities fraud and three counts of wire fraud.
MoviePass exploded in 2017 after it announced its all-you-can watch subscription plan, priced at $9.95 per month. The service quickly grew from 20,000 members to more than 3 million — but hemorrhaged money and eventually collapsed.
The charges, which were unsealed on Friday, echo the allegations filed by the Securities and Exchange Commission in a civil complaint on Sept. 27.
Both cases allege that Lowe and Farnsworth falsely claimed that their subscription model had been market tested and would be sustainable over the long run.
The indictment also alleges that they falsely claimed to be using “big data” and “artificial intelligence” to monetize subscriber information, and that they also falsely claimed that they were developing multiple revenue streams and that their costs were declining. In fact, the government alleges that they took steps to try to block subscribers from using the service in a bid to staunch the bleeding.
In a statement on Friday, the FBI characterized their assertions as an “attempted scam” intended to prop up the stock price.
“Attempted scams of this nature erode the public’s faith in our financial markets,” said Michael J. Driscoll, the assistant director of the FBI’s New York field office. “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.”
Farnsworth’s spokesman, Chris Bond, said that Farnsworth acted in good faith and would fight the charges.
“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.”
Lowe recently published a memoir about his career in business, which also included stints at Redbox and Netflix.
MoviePass also recently announced that it would relaunch with a different business plan and new ownership.