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Mitchell Lowe, the former CEO of MoviePass, was indicted over fraud charges for allegedly defrauding investors with false claims on the company’s movie-a-day subscription model.
On Friday, November 4, the Department of Justice issued a press release detailing the charges against Mitchell Lowe and his co-defendant Theodore Farnsworth, the former CEO of Helios and Matheson, the parent entity of MoviePass.
The Justice Department said Mitchell Lowe and his co-defendant were charged with one count each of securities fraud and three counts each of wire fraud. The charges alleged that the accused engaged in illegal activities “to artificially inflate the price of HMNY’s stock and attract new investors” while the company was actively losing money.
According to the indictment, Farnsworth, 60, and Lowe, 70, knowingly schemed to deceive MoviePass investors by producing misleading proof on the sustainability of the site’s “unlimited” plan that offered customers the ability to view one movie a day for a $10 fee a month.
The new business model that eventually led to the company’s downfall was misrepresented to the investors, who were told that it was sustainable and tested in the markets to churn out profits.
Mitchell Lowe defrauded investors and bankrupted the company
In 2017, Mitchell Lowe, the MoviePass CEO, offered an all-you-can-watch subscription plan priced at $9.95 per month that exponentially exploded. The plan multiplied its initial 20,000 members to more than 3 million. However, subscriptions fraught with unsustainable models led to the company losing money. The company then declared bankruptcy two years after they proposed their subscription.
Officials said Lowe and his co-defendant were aware that the claims made to their investors were false when they used Helios and Matheson Analytics to support their model erroneously. According to court documents, the accused told investors that the subscription plan was created using AI when no such technology was used.
The Department of Justice said in a statement:
"Farnsworth and Lowe allegedly made false claims that HMNY possessed and used technologies – like “big data” and “artificial intelligence” platforms – to generate revenue by analyzing and monetizing the data MoviePass collected from subscribers."
They further added:
"However, the indictment alleges that Farnsworth and Lowe knew HMNY did not possess these technologies or capabilities to monetize MoviePass’s subscriber data or incorporate these technologies into the MoviePass application."
The Securities and Exchange Commission also filed charges on September 27, 2022, with similar allegations, where they created fake invoices to show over $310,000 in personal benefits.
Chris Bond, a spokesperson for Farnsworth, said that they plan to contest the allegations until the accused is cleared of all charges.
A year after MoviePass announced its bankruptcy, co-founder Stacy Spikes bought the company hoping to revive the business she was once pushed out of in 2018. Spikes said that she plans to restart the service by offering subscriptions that will cost $10, $20, or $30, based on the market conditions. The site says that it will be launched on November 9, 2022.
