Former MoviePass Directors Sued By SEC

Mitch Lowe and Ted Farnsworth smiling and looking at the camera during a movie premiere for the movie Gotti

Mitch Lowe, left, and Ted Farnsworth, right, were execs for MoviePass and parent company HMNY, respectively. They spearheaded the decision-making process when MoviePass began using abusive tactics to limit the use of their app by the most avid users. Photo: Dave Kotinsky/Getty Images (Getty Images)

The story of MoviePass’s demise is a replay that everyone would love to repeat, even if it’s one we’ve heard over and over. While you see new incarnations of the once-dead service already gathering steam, perhaps it’s a story best repeated until the lessons sink in.

Late Monday, the Securities and Exchange Commission filed a lawsuit against previous MoviePass execs, including former MoviePass CEO Mitch Lowe and ex-CEO of parent company Ted Farnsworth, formerly of analytics firm Helios and Matheson (HMNY). The agency wrote that the companies and top executives lied to investors and the public about how they planned to be profitable as it promoted its $9.95 subscription service, allowing essentially unlimited movie views.

“Faced with debilitating negative cash flows—rather than telling the public the truth—Farnsworth and Lowe devised fraudulent tactics to prevent MoviePass’ heavy users from using the service, falsely and misleadingly informing the public that use is natural. manner or as a result of company action to address alleged subscriber violations of MoviePass terms of service,” the SEC wrote in its initial complaint.

The SEC also said former Vice President Khalid Itum filed false documents with the company between January and April 2018 and was awarded more than $310,000 from both MoviePass and HMNY “for his personal benefit”. Variety had previously reported that Itum had stolen tens of thousands of dollars from a former employer of his, a furniture salesman in Washington DC.

The lawsuit reads like a greatest hits album of MoviePass’ incredible efforts to support its failing business model. The company promised unlimited movies, but then tried to hold back when it suddenly terminated that service, blocked users from watching certain movies, and even allegedly changed user passwords and blocked account access to prevent movie buffs from using the promised rewards. The SEC said the pair lied in quarterly press releases, saying the reduced subscriber usage was “natural” as they tried to forcefully reduce the number of movies seen by heavy users.

Funnily enough, Stacy Spikes, one of MoviePass’s original co-founders, had said that the $10 per month unlimited viewings would be a short-lived promotion to build 100,000 subscribers, but the new executives got too excited about the skyrocketing subscriptions to actually make it. a real business model. Before Helios acquired the company in 2017, unlimited movie viewing was costing users about $40 to $50 per month, according to Bloomberg.

According to the complaint, Farnsworth was the main person pushing for the $10 price, along with the “every movie; any theater; any day” slogan, even if the companies knew it wasn’t profitable. The SEC said he and Lowe publicly claimed it would allow the company to make a profit without having to raise prices “and misleadingly suggested that this important metric was based on rigorous market testing.” The SEC cites multiple interviews like this one from Variety, in which executives said they didn’t need to raise prices.

Chris Bond, a spokesperson for Farnsworth, told multiple outlets, including Insider, that the complaint was based on an investigation revealed three years ago, and that the ex-CEO of HMNY “would dispute the complaint” as “he is always in good has acted faithfully in the interests of its companies and shareholders.”

Itum left MoviePass in 2019 and now works for consulting firm NextGen Venture Partners, according to his LinkedIn page. Lowe had also previously worked as an executive at both Netflix and Redbox. Gizmodo contacted him through his professional site, but didn’t hear back immediately. Itum could not be reached for comment and did not respond to requests from other media outlets.

Of course, the company has faced multiple lawsuits and investigations from prosecutors. Last year, MoviePass settled with the Federal Trade Commission over allegations that it had violated the trust of its users by using fraudulent and deceptive tactics.

The SEC’s complaint asks the court to let Farnsworth and Lowe vent all proceeds of their fraud and pay civil fines, while prohibiting them from ever serving as directors for a company that can register with the agency.

But zombie companies like MoviePass don’t seem to be staying in the grave. The company went bankrupt in 2020, but Spikes rose from the ashes, who bought the company back through the bankruptcy auction. Spikes announced a reboot of sorts for select cities promoting a new subscription-based movie ticket service. Despite the heartless and greedy attitudes of previous MoviePass execs, the beta sign-ups started in early September, where they say they had more than 460,000 movie fans on their waiting list in the first 24 hours.

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