The former chief executive of the parent company of MoviePass, Theodore Farnsworth, pleaded guilty to charges of securities fraud and conspiracy after being accused of misleading investors over the service’s “unlimited plan.”
Farnsworth also pleaded guilty to conspiracy to commit securities fraud as the 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 subscribers the opportunity to watch unlimited movies in theaters for a monthly fee of $9.95.
The Department of Justice says Farnsworth and his co-conspirators falsely claimed that the unlimited plan was sustainable and would be profitable or break even on subscription fees alone. However, Farnsworth was aware that the new plan was a temporary marketing gimmick to attract new subscribers, artificially inflate HMNY’s stock price, and attract new investors. In reality, MoviePass lost money from the “unlimited” plan.
Farnsworth also told investors that HMNY used “big data” and artificial intelligence capabilities to generate revenue by monetizing the data MoviePass collected from subscribers. However, Farnsworth knew HMNY didn’t possess the capabilities to do so, the Department of Justice says.
He also made false claims about how multiple revenue streams, outside of subscription fees, were having a positive impact on the company’s profitability, knowing that MoviePass did not have non-subscription revenue streams that would make it self-sufficient.
“Theodore Farnsworth — formerly the CEO of two publicly traded companies — repeatedly lied to the public to artificially inflate these companies’ stock prices, defraud investors, and enrich himself and his co-conspirators,” said Principal Deputy Assistant Attorney General Brent S. Wible, head of the Justice Department’s Criminal Division, in a press release.
“He concealed that MoviePass’ subscription model was a money-losing gimmick and falsely claimed that HMNY used artificial intelligence to monetize MoviePass’ subscriber data, among other misrepresentations. The Criminal Division is committed to protecting investors from criminals who engage in fraudulent schemes, including those that employ AI washing,” he continued.
From November 2020 through September 2024, Farnsworth and his co-conspirators used the same strategies to defraud Vinco investors, the Department of Justice says.
Farnsworth faces a maximum of 20 years in prison for the securities fraud count regarding MoviePass and a maximum of five years for the conspiracy count related to Vinco.
MoviePass co-founder Stacy Spikes bought back MoviePass in 2021 and relaunched it in late 2022 with a new business model.