- The SEC is suing former MoviePass executives Mitch Lowe and Ted Farnsworth.
- The suit claims they made "false and misleading statements" about the company being profitable.
The Securities and Exchange Commission is suing former MoviePass CEO Mitch Lowe and Ted Farnsworth, the former CEO of MoviePass' parent company, Helios and Matheson Analytics (HMNY), alleging they mislead investors that the company could make a profit at its $10-a-month plan.
A complaint filed late Monday, reviewed by Insider, said the duo made "false or misleading statements" in financial filings and in the press.
"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 said.
The lawsuit also named former MoviePass Vice President Khalid Itum as a defendant. The complaint accused Itum of submitting false invoices and receiving more than $310,000 from both MoviePass and HMNY.
"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," said Chris Bond, a spokesperson for Ted Farnsworth, in a statement to Insider. "Mr. Farnsworth continues to maintain that he has always acted in good faith in the best interests of his companies and shareholders."
"We disagree with the SEC's characterization of Mitch's conduct, including allegations about statements made about the progress in building MoviePass," said William McGovern of the firm Kobre & Kim, which represents Lowe, in a statement to Insider. "Bringing new commercial concepts to the market can be disruptive and uneven. Mitch remains proud of what was accomplished at MoviePass and intends to work within the legal process to resolve these allegations."
Insider contacted Lowe and Itum for comment but didn't get a response.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 $10-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.
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.