DOJ Says Ex-MoviePass Execs Misled Investors

The U.S. Department of Justice has charged a pair of former MoviePass executives with fraud, saying they misled investors about the health of the subscription movie ticket service.

According to a Justice Department news release, MoviePass told investors its plan to offer $9.95 per month subscriptions for “unlimited” tickets was viable and would generate a profit, while privately considering the idea a “temporary marketing gimmick.”

Ted Farnsworth, former head of MoviePass-owner Helios and Matheson (HMNY) at the time, and Mitch Lowe, MoviePass’ former CEO, are accused of attempting to deceive 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,” the Justice Department said.

Prosecutors say they did this by making false claims about the technology behind MoviePass, saying it would provide valuable customer behavior insights. In truth, the men knew MoviePass’ tech had no such capabilities.

Representatives for Farnsworth and Lowe were not immediately available for comment.

The charges follow an agreement last year by MoviePass to settle a Federal Trade Commission (FTC) case over allegations that the company blocked subscribers from using the service while also not securing users’ personal data.

See also: MoviePass Relaunches, but Can Sequel Be Better Than Original?

Earlier this year, MoviePass announced it was reinventing itself with a new tiered structure, giving customers different price points as consumers look to cut costs.

As PYMNTS wrote at the time, the “original problem with MoviePass was unlimited movies on a subscription, and the economics didn’t work for theater chains. A new subscription model addresses that flaw, but millennials and Gen Zers weren’t big theatergoers before, and there’s no sign they ever will be.”

There’s also the issue of the “Great Unsubscribe,” and the fact that ongoing inflation could keep people away from theaters. Recent research by PYMNTS found that 40% of consumers are skeptical that inflation will revert to pre-pandemic levels in the next two years.