The former CEOs of MoviePass and its parent company have been charged in a securities fraud case

• Lowe and Farnsworth have been charged in a securities fraud case by the Department of Justice.
• Both were charged with one count of securities fraud and three counts of wire fraud.

The former CEOs of MoviePass and its former parent company, Helios and Matheson Analytics (HMNY) — Ted Farnsworth and Mitch Lowe — have been charged in a securities fraud case, according to court documents.

Per a Department of Justice statement, the court documents allege that Farnsworth and Lowe "engaged in a scheme to defraud investors through materially false and misleading representations relating to HMNY and MoviePass's business and operations to artificially inflate the price of HMNY's stock and attract new investors."

The DOJ statement says:

"Farnsworth and Lowe are each charged with one count of securities fraud and three counts of wire fraud. If convicted, they each face a maximum penalty of 20 years in prison on each count."

Farnsworth surrendered himself to authorities in Washington, DC, on Friday, his rep confirmed.

Stacy Spikes founded MoviePass with Hamet Watt in 2011, creating a service that let moviegoers see a certain number of movies each month in theaters for a monthly fee. After struggling to stay afloat for years, the company in 2017 was bought by HMNY.

Under the leadership of Farnsworth and Lowe, the company launched a $9.95-a-month subscription that allowed people to see a movie a day. Within two days, subscriptions went from 20,000 to 100,000. In less than a year, MoviePass had over 3 million subscribers. However, the company also blew through hundreds of millions of dollars.

The indictment alleges Farnsworth and Lowe falsely claimed that MoviePass' $9.95 plan "was tested, sustainable, and would be profitable or break even on subscription fees alone," while knowing it was a "a temporary marketing gimmick to grow new subscribers and, in turn, artificially inflate HMNY's stock price and attract new investors," according to the DOJ statement.

Additionally, the indictment alleges that Farnsworth and Lowe made false claims that HMNY "possessed and used technologies – like 'big data' and 'artificial intelligence' platforms – to generate revenue by analyzing and monetizing the data MoviePass collected from subscribers," the DOJ statement says.

The court documents allege Farnsworth and Lowe "directed MoviePass employees to implement numerous tactics to prevent certain subscribers from using the purportedly 'unlimited' service for which they had paid to try to ease MoviePass's cash shortfalls," the DOJ statement says.

Per the DOJ statement, the indictment also alleges that Farnsworth and Lowe "made these materially false and misleading representations in press releases, SEC filings, interviews on podcasts and on television, and in print and online media."

"The Department of Justice is committed to protecting the public from being exploited by criminals for their personal profit," said Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department's criminal division in a statement. "As these charges make clear, the Department, together with our law enforcement partners, will hold corrupt C-Suite executives who engage in securities fraud accountable for their actions."

"Attempted scams of this nature erode the public's faith in our financial markets," said Assistant Director in Charge Michael J. Driscoll of the FBI New York Field Office in a statement. "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 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," Chris Bond, spokesman for Farnsworth, told Insider in a statement. "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's lawyer did not immediately respond to a request for comment.

HMNY was delisted from the Nasdaq in 2019 and both MoviePass and HMNY filed for bankruptcy in 2020. At the time of MoviePass' bankruptcy filing, the company said it was under pending investigations by the Federal Trade Commission, SEC, four California district attorneys, and the New York attorney general.

Last June, Farnsworth and Lowe settled with the FTC and reached a $400,000 settlement with the California district attorneys.

MoviePass relaunched over Labor Day in beta form. Now run by Spikes, it's currently available in Dallas, Kansas City, and Chicago.