Former MoviePass CEO Mitchell Lowe is facing fraud charges for allegedly deceiving investors about the company’s movie-a-day subscription plan.
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On Friday, November 4, the Department of Justice released a news release describing the charges brought against Mitchell Lowe and his co-defendant Theodore Farnsworth, the former CEO of Helios and Matheson, the organization that owns MoviePass.
According to the Justice Department, Mitchell Lowe and his co-defendant were each charged with one count of securities fraud and three counts of wire fraud. The accusations state that while the company was actively losing money, the defendants committed crimes “to artificially inflate the price of HMNY’s shares and attract new investors.”
The indictment claims that Farnsworth, 60, and Lowe, 70, knowingly conspired to mislead investors in MoviePass by presenting misleading information about the service’s “unlimited” plan, which let members watch one movie per day for a monthly fee of $10. Investors were misled into believing the new business approach was profitable, sustainable, and market-tested, which ultimately resulted in the company’s downfall.
In 2017, MoviePass CEO Mitchell Lowe unveiled an all-you-can-watch membership plan for $9.95 per month. From 20,000 customers, the plan now has more than 3 million. However, the company suffered a loss due to unprofitable subscription strategies. The corporation submitted a bankruptcy petition two years after they offered their subscription.
Officials claim that when Lowe and his co-defendant used Helios and Matheson Analytics wrongly to support their approach, they knew the claims they made to their investors were untrue.
The defendants allegedly deceived investors by saying that artificial intelligence was used to create the subscription plan when, in fact, no such technology was used, according to court documents.
Farnsworth and Lowe allegedly made up the fact that HMNY used platforms for “big data” and “artificial intelligence” to make money by analyzing and monetizing information received from MoviePass subscribers.
They continued, saying:
The indictment claims that Farnsworth and Lowe were aware that HMNY lacked the required tools and resources to use MoviePass subscriber data for commercial purposes or to incorporate these tools into the MoviePass application.
The Securities and Exchange Commission filed charges with identical allegations on September 27, 2022, stating that they created phony invoices to show over $310,000 in personal benefits.
According to Chris Bond, a spokeswoman for Farnsworth, the business plans to contest the allegations until the accuser is cleared of all charges.
Co-founder Stacy Spikes bought the company a year after MoviePass filed bankruptcy in the hopes of rebuilding the company she was thrown out of in 2018. According to Spikes, she plans to restart the business by offering memberships for $10, $20, or $30, depending on the state of the market. The website states that it will go live on November 9, 2022.
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