There really is no such thing as a free ticket.
The former chairman and chief executive of MoviePass have been charged with criminal securities fraud for allegedly lying about whether the unlimited film ticket service actually worked and hiding huge losses from investors in order to boost its stock price, according to a federal indictment announced Friday.
Ted Farnsworth, 60, and J. Mitchell Lowe, 70, were charged with falsely claiming that MoviePass’s offer of unlimited tickets for just $9.95 a month was sustainable and could even be profitable, when they knew it was just a marketing gimmick aimed solely at boosting subscriber numbers.
By inflating the number of subscribers, the pair were able to entice new investors to pump up the company’s stock price.
In reality, the company was hemorrhaging huge sums of money by giving away so many low-cost tickets. MoviePass filed for Chapter 7 bankruptcy protection in January 2020.
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“The defendants deliberately and publicly engaged in a fraudulent scheme designed to falsely bolster their company’s stock price,” said Michael Driscoll, of the FBI. “Attempted scams of this nature erode the public’s faith in our financial markets.
Prosecutors also say that Farnsworth, of Miami, and Lowe, of Miami Beach, falsely claimed that MoviePass used artificial intelligence and other big data crunching methods to better generate revenue, even though they did not possess such technology.
In September, the men were hit with similar civil charges brought by the Securities and Exchange Commission. Farnsworth and Lowe face up to 20 years in the criminal matter.
A spokesman for Farnsworth said the former MoviePass executive “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.
A message left with an attorney for Lowe wasn’t immediately returned.
At the time of the alleged fraud, Farnsworth was the chairman and chief executive of Helios & Matheson Analytics Inc., a publicly traded company that was the parent company of MoviePass. Lowe served as the CEO of MoviePass.
MoviePass was launched in 2011 as a subscription service that offered up to one movie ticket per day for a monthly fee. In 2017, the company was acquired by Helios & Matheson, who drastically reduced the subscription fee to just $9.95 per month.
The ploy worked and the company soon racked up over 3 million subscribers. But giving away so many discounted tickets quickly eroded its financial footing.
The company eventually emerged from bankruptcy and announced a limited relaunch in September in select cities with packages ranging from $10 to $30 per month.