Two former MoviePass executives are facing charges they engaged in a scheme to deceive investors in the company, according to InsuranceNewsNet.
The U.S. Department of Justice announced the indictments against former MoviePass CEO J. Mitchell Lowe and Theodore Farnsworth, who was CEO of the company’s parent firm Helios & Matheson. (HMNY). The two are charged with securities fraud for allegedly making false and misleading statements in order to boost the stock price of HMNY and attract investors.
According to the indictment that was unsealed in Miami, Farnsworth and Lowe falsely claimed that MoviePass’s “unlimited” plan, in which new subscribers could see unlimited movies in theaters for a flat monthly fee of $9.95, was tested, sustainable, and would be profitable or break even on subscription fees alone. But prosecutors said the defendants knew this plan was a “temporary marketing gimmick” in order to gain subscribers and artificially inflate the stock price of HMNY. MoviePass ended up losing money on the unlimited plan.
“As alleged, the defendants deliberately and publicly engaged in a fraudulent scheme designed to falsely bolster their company’s stock price,” said Assistant Director in Charge Michael J. Driscoll of the FBI New York Field Office. “Attempted scams of this nature erode the public’s faith in our financial markets.”
Among other allegations are that Farnsworth and Lowe falsely claimed that HMNY possessed and used certain technologies to generate revenue by monetizing data gathered from MoviePass subscribers. In reality, prosecutors say the two knew that HMNY did not possess the technologies needed to monetize the company’s subscriber data.
In addition, the two allegedly made false and misleading statements that multiple revenue streams were improving MoviePass’s profitability when in fact they knew the company did not have non-subscription revenue streams that would make the company self-sufficient.
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.
Investors incur losses when companies, corporate insiders, hedge funds, private placement issuers, financial advisors and other financial professionals make false or misleading statements or fail to disclose material information. The attorneys at Lewitas Hyman have decades of experience dealing with securities fraud cases and have a deep understanding of how capital markets and financial service firms are intended to work to protect investors. If you think your financial professional or firm engaged in misconduct that caused you investment losses, contact Lewitas Hyman at (844) 651-2643 or through our online contact form for a no-cost evaluation of your matter.