“A Florida man pleaded guilty today,” a Department of Justice news release begins. published on Tuesday. In this case, the ever-infamous Florida Man is none other than Ted Farnsworth, former CEO of MoviePass' parent company. His plea comes less than four months after another MoviePass leader, former CEO Mitch Lowe, pleaded guilty.
Farnsworth pleaded guilty to one count of securities fraud and one count of conspiracy to commit securities fraud. He will face a maximum sentence of 20 years in prison for the first charge and up to five for the second. A sentencing hearing will be scheduled later.
The Justice Department charged Farnsworth, 62, with conspiring to defraud investors in MoviePass' former parent company, Helios & Matheson Analytics (HMNY). The agency accused him of making false and misleading representations of HMNY and MoviePass' businesses to artificially inflate shares and court investors.
If this sounds familiar, it's because former MoviePass CEO Mitch Lowe pleaded guilty to the same charges in September. Lowe reportedly agreed to cooperate with prosecutors and regulators as part of his deposition, a detail one can imagine tightening the pressure on Farnsworth ahead of his deposition.
MoviePass subscribers paid the company $9.95 a month for what were supposed to be unlimited movie tickets with no blackout dates. Farnsworth and Lowe told investors that the business plan had been tested and was sustainable and would at least break even, if not turn a profit, on subscription fees alone. On top of that, they used buzzwords like “big data” and “artificial intelligence” to claim they could alchemize subscriber data and transform it into profits.
But according to the Department of Justice (and… logic), that was never the case. Instead, it was a marketing stunt to attract new subscribers and boost HMNY's stock price.
Farnsworth falsely claimed that MoviePass' cost of goods (the number of tickets each subscriber purchased with their subscription) naturally decreased over time, which was in line with his publicly stated expectations. But the Justice Department says that was because the company directed MoviePass employees to limit subscribers who used the service to purchase the most movies, preventing them from getting what was promised with their “unlimited” memberships. That aligns with information Starting in 2019, employees were ordered to change the passwords of frequent moviegoers.
Unsurprisingly, the company lost money on the scheme. A downward spiral began, with MoviePass and its parent company filing for bankruptcy in 2020 and the pair of Florida men in charge of the too-good-to-be-true scheme admitting their guilt in federal court.
The company has since been resurrected with a new business model after co-founder Stacy Spikes purchased its leftovers in 2021.
