A lawsuit was filed by the U.S. Securities and Exchange Commission (SEC) against two former MoviePass executives for allegedly misleading investors about the company's profit potential, according to Endgadget.
Former MoviePass CEOs Mitch Lowe and Ted Farnsworth, former chairman and CEO of Helios and Matheson Analytics (HMNY), are facing a lawsuit for claiming that the company could make a profit out of its $9.95 a month plan, as per The Business Insider.
MoviePass Executives Mislead Investors
The U.S. SEC filed a complaint filed against the two MoviePass executives this week with the U.S. District Court for New York's southern district, according to Deadline.
According to the suit, Lowe and Farnsworth, intentionally and repeatedly disseminated misleading statements to public regarding MoviePass and the key aspects its business model.
The two executives are said to have misled investors by claiming that MoviePass could earn profit out of the all-you-can watch moviegoing for only $9.95 a month.
"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," the complaint said.
With this, the two executive falsely and misleadingly notified 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,"
Aside from Lowe and Farnsworth, Khalid Itum was also named as a defendant. The former MoviePass vice president of business development was accused of submitting false invoices signed off by the two executives, letting him get $310,000.
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Stacy Spikes is Launching an Updated Version of MoviePass
Under the management of Lowe and Farnsworth, users were promised a $9.95 per month subscription by MoviePass. This monthly subscription is said to give users an unlimited number of 2D movie tickets.
However, as the service was likely losing a lot of money, MoviePass quickly ended it. Eventually, in 2020, the company filed for bankruptcy, as per TechCrunch.
According to The Wrap, Farnsworth and Lowe were giving "materially false and misleading public statements regarding MoviePass."
The two executives claimed that the $9.95 monthly subscription would make the company profitable. They are even suggesting that the business model is based on a rigorous market testing.
The suit cited that Lowe even claimed that people who thought the subscription price should be increased don't understand MoviePass' business model.
Moreover, Lowe falsely claimed that MoviePass conducted rigorous testing until the company is ready to roll out the $9.95 plan. In fact, MoviePass did not test the price point.
MoviePass was founded by Stacy Spikes with Hamet Watt in 2011. It allows moviegoers view a number of movies in theaters for a monthly fee. In 2017, the company was bought by HMNY.
Currently, an updated version of MoviePass is being launched by Spikes. It is undergoing beta testing in Chicago, Kansas City, and Dallas.
However, the updated version will not offer unlimited viewing. Instead, it will offer three subscription tiers priced at $10, $20, and $30 per month.
Related Article: MoviePass Relaunches App in Beta Form - How Much Will It Cost?
