Former CEO of MoviePass parent company, Theodore Farnsworth, Pleaded guilty Charged with securities fraud and conspiracy for allegedly misleading investors about the service's “unlimited plan.”
Farnsworth pleaded guilty to conspiracy to commit securities fraud as chief executive of Vinco Ventures, a publicly traded company.
Helios & Matheson Analytics (HMNY), the parent company of MoviePass and Vinco, acquired a majority stake in MoviePass in 2017. Following this acquisition, MoviePass launched a new “Unlimited” plan, offering new customers unlimited movie viewing in theaters for a monthly fee of $9.95.
The Justice Department said Farnsworth and his co-conspirators falsely claimed the unlimited plan would be sustainable and profitable or would only break even on subscription fees. However, Farnsworth was aware that the new plan was a temporary marketing ploy to attract new customers, artificially inflate HMNY's stock price, and attract new investors. In reality, MoviePass lost money from the “unlimited” plan.
Farnsworth told investors that HMNY uses “big data” and artificial intelligence capabilities to generate revenue by monetizing the data MoviePass collects from customers. However, Farnsworth knew HMNY did not have the authority to do so, the Justice Department says.
He also falsely claimed how multiple revenue streams beyond subscription fees were positively impacting the company's bottom line, knowing that MoviePass had no non-subscription revenue streams that would make it self-sustaining.
Principal Deputy Attorney General Brent S. Wibble said, “Theodore Farnsworth — formerly the CEO of two publicly traded companies — repeatedly lied to the public in order to artificially inflate the stock prices of those companies, defraud investors, and enrich himself and his co-conspirators. “. , chief of the Justice Department's criminal division, in a press release.
“He concealed that MoviePass' subscription model was a money-losing strategy and falsely claimed that HMNY used artificial intelligence to monetize MoviePass' customer data, among other misrepresentations. The Crime Branch is committed to protecting investors from criminals who engage in fraudulent schemes that employ AI laundering,” he continued.
From November 2020 to September 2024, Farnsworth and his co-conspirators used similar tactics to defraud Vinco investors, the Justice Department said.
Farnsworth faces a maximum of 20 years in prison for the MoviePass-related fraud count and a maximum of five years in prison for the Vinco-related conspiracy count.
MoviePass co-founder Stacy Spikes purchased MoviePass in 2021 and relaunched it in late 2022. With a new business model.