“A Florida man pleaded guilty today,” began a Department of Justice press release published on Tuesday. In this case, the ever-infamous Florida Man is none other than Ted Farnsworth, the former CEO of MoviePass’ parent company. His plea comes fewer than four months after another MoviePass leader, former CEO Mitch Lowe, entered a guilty plea of his own.
Farnsworth pleaded guilty to one count of securities fraud and another of conspiracy to commit securities fraud. He’ll face a maximum of 20 years in prison for the former charge and up to five for the latter. A sentencing hearing will be scheduled later.
The DOJ charged Farnsworth, 62, with scheming to defraud investors in MoviePass’ former parent company, Helios & Matheson Analytics (HMNY). The agency accused him of making false and misleading representations of HMNY’s and MoviePass’ business to artificially inflate stock and woo investors.
If that sounds familiar, it’s because former MoviePass CEO Mitch Lowe pleaded guilty to the same charges in September. Lowe reportedly agreed to cooperate with prosecutors and regulators as part of his plea, a detail one can imagine tightened the vise on Farnsworth leading up to his plea.
MoviePass subscribers paid the company $9.95 monthly for what were supposed to be unlimited movie tickets with no blackout dates. Farnsworth and Lowe told investors the business plan was tested and sustainable and would at least break even — if not turn a profit — from subscription fees alone. On top of that, they used buzzwords like “big data” and “artificial intelligence” to claim they could alchemize subscriber data, transforming it into profit.
But according to the DOJ (and… logic), that was never the case. Instead, it was a marketing gimmick to lure in new subscribers and pump HMNY’s stock price.
Farnsworth falsely claimed that MoviePass’ cost of goods (the number of tickets each subscriber bought with their subscription) naturally declined over time, which was in line with his publicly stated expectations. But the DOJ says that was because the company directed MoviePass employees to throttle subscribers who used the service to buy the most movies, preventing them from getting what was promised from their “unlimited” memberships. That aligns with reports from 2019 that employees were ordered to change the passwords of frequent moviegoers.
Unsurprisingly, the company lost money from the plan. A downward spiral commenced, MoviePass and its parent company declared bankruptcy in 2020 and the pair of Florida men in charge of the too-good-to-be-true scheme have admitted their guilt in a federal court.
The company has since been resurrected with a new business model after co-founder Stacy Spikes bought its scraps in 2021.
This article originally appeared on Engadget at https://www.engadget.com/entertainment/former-moviepass-head-pleads-guilty-to-securities-fraud-180603455.html?src=rss https://www.engadget.com/entertainment/former-moviepass-head-pleads-guilty-to-securities-fraud-180603455.html?src=rssLogin to add comment
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