SEC sues MoviePass executives for false statements about business model

The US Securities and Exchange Commission (SEC) has sued three executives involved with MoviePass, alleging they lied repeatedly about whether their subscription service could become profitable.

Former MoviePass CEO J. Mitchell Lowe and Theodore Farnsworth — former CEO of majority stakeholder Helios and Matheson Analytics Inc. — allegedly made false claims to the public and in regulatory filings, attempting to conceal the subscription theater ticket service’s dire economic prospects. That included falsely claiming that heavy users had tripped security flags or been randomly selected for extra measures to stop them from using MoviePass, when in reality, these users were simply putting stress on an unsustainable business model.

“Faced with debilitating negative cash flows … Farnsworth and Lowe devised fraudulent tactics to prevent MoviePass’s heavy users from using the service.”

“Faced with debilitating negative cash flows — rather than tell the public the truth — Farnsworth and Lowe devised fraudulent tactics to prevent MoviePass’s heavy users from using the service, and falsely and misleadingly informed the public that usage had declined naturally,” says the complaint, which was filed on Monday in a New York court.

The suit alleges a bevy of other deceptive tactics as well, including ones linked with its third defendant, former MoviePass executive vice president Khalid Itum. The SEC claims Farnsworth and Lowe signed false invoices giving Itum $310,000 under false pretenses, including fraudulent expenses from Itum’s event production company Kaleidoscope, which staged MoviePass-sponsored events at Coachella and the Sundance Film Festival.

The SEC is seeking monetary damages as well as a ban on Lowe and Farnsworth serving as officers or directors of any company with registered securities. Meanwhile, MoviePass came back from the dead earlier this month — but with higher prices, new management, and only three test markets.