MoviePass Execs Charged With Securities Fraud

from the your-neverending-pass-to-securities-fraud dept

You’ll be shocked to learn that the same MoviePass executives that routinely misled investors (and once even covertly changed user passwords to try and keep them from using a service they paid for) are now in even more trouble for their dodgy business practices.

According to an announcement by the DOJ, former MoviePass executives Theodore Farnsworth and J. Mitchell Lowe have been charged in a securities fraud scheme related to MoviePass parent company, Helios & Matheson Analytics. According to the Justice Department, the duo routinely mislead investors as to the fact that MoviePass was a money-losing dumpster fire:

The indictment alleges Farnsworth and Lowe falsely claimed that MoviePass’s $9.95 “unlimited” plan – in which new subscribers could see “unlimited” movies in theaters with no blackout dates for a flat monthly fee of $9.95 – was tested, sustainable, and would be profitable or break even on subscription fees alone. Farnsworth and Lowe allegedly knew that the $9.95 “unlimited” plan was a temporary marketing gimmick to grow new subscribers and, in turn, artificially inflate HMNY’s stock price and attract new investors. As a result, MoviePass lost money from the $9.95 “unlimited” plan.

But the DOJ said the duo also took the added step of misleading investors by falsely claiming that the company had created amazing new AI-based user data monetization systems that… didn’t exist:

Farnsworth and Lowe allegedly made false claims that HMNY possessed and used technologies – like “big data” and “artificial intelligence” platforms – to generate revenue by analyzing and monetizing the data MoviePass collected from subscribers. However, the indictment alleges that Farnsworth and Lowe knew HMNY did not possess these technologies or capabilities to monetize MoviePass’s subscriber data or incorporate these technologies into the MoviePass application.

The duo had already struck a wrist slap settlement with the FTC, and are being sued by the SEC. MoviePass itself lives on, and recently saw a limited relaunch under new management.

Originally, the MoviePass business model seemed like a semi-sensible idea, though we were quick to wonder if it would ever actually make a profit. Under the model, users paid $30 (eventually $10) a month in exchange for unlimited movie tickets at participating theaters, provided they signed up for a full year of service. There were, of course, caveats: you could only buy a ticket per day, and could only buy one ticket per movie. It also prohibited users from viewing 3D, IMAX, or XD films. Still, the proposal was widely heralded by some as a savior for the traditional, brick and mortar, sticky floor movie industry.

In 2019, a four-month investigation by Business Insider found that MoviePass had been bleeding money for years, and misleading investors for much of that time. Not only was the idea never really profitable, the company couldn’t even manage to acquire enough plastic to keep up with membership card demand.

Showcasing the width and depth of the dodgy effort, at one point executives genuinely thought it would be a good idea to actually change user passwords so paying customers couldn’t use the service, thinking this would let them get their head above water. Things… didn’t work out.

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Companies: helios and matheson, moviepass

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Comments on “MoviePass Execs Charged With Securities Fraud”

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8 Comments
Christenson says:

Re: Requirements for a "real" business

Not necessarily… besides competing with “Fandango”, the thing Moviepass needed to do was figure out how to entice a bit more of the fixed entertainment dollar out of people who have choices, like NetFlix, etc, and buy tickets themselves in bulk.

To do that, you’d need to advertise to the right audience and offer them a small per-movie discount, or otherwise make moviegoing (or movie finding) a great experience, so people would spend more total dollars on going out to movies.

To create that kind of magic might be quite difficult, especially in cities with film societies. You would probably need to have the previews for all the movies in town, various ways to sort them, and a deal like 6 tickets for the price of 5. Consolidation is your enemy, as nothing prevents the AMC multiplex from pulling the same tricks unless they have serious movie theater competitors.

nerdrage (profile) says:

Re: maybe MoviePass might have had a plan

If MoviePass was an experiment to see whether it could become a valuable enough marketing tool to theaters that they would start selling tickets to MoviePass at less than they paid for them, this business model could have worked.

And maybe it did work. The theater chains created their own pass systems after MoviePass showed them proof of concept. The problem is, what’s their motive to share anything with MoviePass? There is none. So MoviePass got cut out and kicked to the curb.

Anonymous Coward says:

AMC A*List

AMC’s A*List plan is the best that I know of. For $25 per month, you can go see three movies per week, with no surcharge for premium formats. In Manhattan, where I live, a single IMAX ticket costs more than that, so this is an incredible bargain, and Manhattan being what it is, there are a plethora of AMC theaters, including one on 42nd St. that shows many foreign films. I have been a member for a number of years (paused during the pandemic shutdown), and this year some I have been to 129 movies so far. (I’m sure they’re losing money on me, but I have friends who are also members who go to far fewer movies than I do.)

So it can be done, but probably not by third parties who buy tickets at retail price. I think AMC cut a deal with the studios to reduce how much they pay per viewer for A*List subscribers.

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