The Securities and Exchange Commission has filed a lawsuit against former MoviePass executives Mitch Lowe and Ted Farnsworth, alleging the two made “false and misleading statements” about the shuttered movie ticket service’s profitability. The suit also names former MoviePass VP Khalid Itum for submitting false invoices.
Lowe, a former Netflix executive and president of Redbox, and Farnsworth, operating under MoviePass’ publicly traded parent Helios and Matheson Analytics, helped re-launch and market MoviePass, which at its peak had more than 3 million subscribers paying $9.99 monthly for unlimited access to a select number theatrical releases every 30 days. The populous concept quickly became financially unsustainable as MoviePass had to pay theatrical operators the face value for each ticket subscribers used.
Helios and Matheson Analytics filed for Chapter 7 bankruptcy protection on Jan. 28, 2020, but not before generating hundreds of millions of dollars in losses.
“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 or due to measures the company had employed to combat subscribers’ purported violations of MoviePass’s terms and conditions of service,” read the complaint.
Lowe’s lawyer, William McGovern, with the firm Kobre & Kim, disagreed with the suit’s wording and negative tone.
“We disagree with the SEC’s characterization of Mitch’s conduct, including allegations about statements made about the progress in building MoviePass,” McGovern wrote in a statement.
“Bringing new commercial concepts to the market can be disruptive and uneven. Mitch remains proud of what was accomplished at MoviePass and intends to work within the legal process to resolve these allegations.”
A spokesperson for Farnsworth said the complaint concerns issues publicly disclosed almost three years ago.
“Mr. Farnsworth continues to maintain that he has always acted in good faith in the best interests of his companies and shareholders,” spokesperson Chris Bond wrote in an email.
Adam Fee, a partner with the law firm Milbank, which is representing Itum, said the former VP has been unfairly targeted by the government in the complaint.
“Khalid is proud of the character and integrity he displayed throughout his time at MoviePass, and we look forward to challenging the SEC’s meritless allegations against him in court,” Fee wrote in an email.
Meanwhile, Farnsworth and Lowe reportedly settled a separate litigation complaint with the Federal Trade Commission and paid another $400,000 settlement with four California District Attorneys offices.