The U.S. Securities and Exchange Commission has sued former top execs at MoviePass and its parent company, Helios + Matheson, for fraud.
A complaint filed this week with the U.S. District Court for New York's southern district (read it here ) centers on Ted Farnsworth and Mitch Lowe . They "intentionally and repeatedly disseminated to the public materially false or misleading statements concerning MoviePass and key aspects of MoviePass's business model," the suit says. The duo allegedly misled investors by suggesting the company could profit by offering all-you-can eat moviegoing for just $9.95 a month.
The digital movie ticketing firm sought to popularize fixed-price ticket buying, a tool widely used in many international markets, but ran afoul of major exhibitors and then its customers after deciding to offer an unsustainable monthly price. After slashing the monthly price from its previous levels of $40 to $50 a month, the company still had to fulfill customer orders for tickets. An inability to satiate surging demand led to outages and disruptions of service at the height of the 2019 summer box office season.
Helios bought MoviePass in 2017, saying it was going to leverage its data from moviegoers in various ways, but the service cratered and by 2020 was bankrupt. Several months ago, one of the company's co-founders, Stacy Spikes, announced an effort to revive the scandal-tarred brand. Spikes has acknowledged that the ill-advised discounting, which happened after he had left the firm, was the undoing of MoviePass.
Lowe was CEO of MoviePass from 2016-2020 and Farnsworth was CEO of Helios + Matheson.
"Faced with debilitating negative cash flows — rather than tell the public the truth — Farnsworth and Lowe devised fraudulent tactics to prevent MoviePass's heavy users from using the service, and falsely and misleadingly 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," the complaint says.
The 35-page complaint lays out a number of assertions by the defendants, through media coverage, SEC filings and other means, that the SEC says were intentionally misleading.
Lowe did not immediately respond to an email from Deadline seeking comment on the lawsuit.
Chris Bond, a spokesperson for Farnsworth, offered Deadline a statement in response to the suit.
"The complaint concerns matters 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 this complaint," the statement said. "Mr. Farnsworth continues to maintain that he has always acted in good faith in the best interests of his companies and shareholders."
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