Indicted: Former MoviePass CEO Charged With Fraud
This week it was announced that the former CEOs of both MoviePass and its parent company have been indicted on federal charges.
MoviePass was a startup launched in 2011 that has gone through multiple incarnations over the years. The best-known one started in 2017 and it was a subscription that allowed users to pay about $9.95 per month for unlimited movies in the theater.
That version closed in late 2019 and filed for bankruptcy in early 2020, on the eve of the Covid-19 pandemic. The company also was involved in producing the much-hated 2018 movie “Gotti.”
MoviePass has been revived, with a blockchain-based model announced earlier this year. But this week, it was announced that the former CEOs of both MoviePass and its parent company have been indicted on federal charges.
Theodore Farnsworth of Miami and J. Mitchell Lowe of Miami Beach were both indicted, and the government alleges that they were “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.”
Both men were charged with one count of securities fraud and three counts of wire fraud. Neither of them is involved in the current incarnation of MoviePass.
The inducement alleges that the two men knew that the company could not make a profitable business out of the $9.95-a-month model.
“The Department of Justice is committed to protecting the public from being exploited by criminals for their personal profit,” Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division, said in the government’s announcement. “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.”
“As alleged, the defendants deliberately and publicly engaged in a fraudulent scheme designed to falsely bolster their company’s stock price,” Assistant Director in Charge Michael J. Driscoll of the FBI New York Field Office, added. “Attempted scams of this nature erode the public’s faith in our financial markets. 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.”
Lowe was also an early executive with Netflix, as well as Redbox. His memoir, “Watch and Learn: How I Turned Hollywood Upside Down with Netflix, Redbox, and MoviePass―Lessons in Disruption,” was published in September. MoviePass and Lowe settled SEC charges in 2021. Matthew Levine, the author of Bloomberg News’ Money Stuff newsletter, noted that the company’s business model never made sense.
“The way it worked is that MoviePass just bought the tickets for you. Movie tickets often cost $12 or more. MoviePass did not own any theaters and did not have special discount deals with most of the theaters (it did with some); it just paid the full retail price,” he wrote. “It was possible for you to lose money with a MoviePass subscription if you only saw a handful of movies a year. But if you saw one movie a month, MoviePass was losing money on you. If you saw one movie a week, MoviePass was losing a ton of money on you. If you saw one movie a day, oops oops oops.”
“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. 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," said Chris Bond, spokesman for Ted Farnsworth.
Stephen Silver, a technology writer for The National Interest, is a journalist, essayist and film critic, who is also a contributor to The Philadelphia Inquirer, Philly Voice, Philadelphia Weekly, the Jewish Telegraphic Agency, Living Life Fearless, Backstage magazine, Broad Street Review and Splice Today. The co-founder of the Philadelphia Film Critics Circle, Stephen lives in suburban Philadelphia with his wife and two sons. Follow him on Twitter at @StephenSilver.