MoviePass CEO Lied About Profitability, Foiled Subscribers!

SEC v. Theodore J. Farnsworth, J. Mitchell Lowe, Khalid Itum — U.S. Securities and Exchange Commission Litigation Release No. 26207, dated January 2, 2025.

The SEC charged Theodore J. Farnsworth, former CEO of MoviePass's parent company, for making false and misleading statements about MoviePass's business model and profitability. He also approved fraudulent invoices for bonus payments disguised as services. The SEC obtained a judgment against him, including permanent injunctions and an officer and director bar, with disgorgement, interest, and penalties to be determined.

In Plain English

Imagine a company that owned a service letting you see lots of movies for a low monthly fee. The boss of the parent company told everyone it was a great business and could make money, even though it was losing a lot. He also made it hard for people to use the service when they wanted to, and approved fake invoices to pay himself and others extra money. The SEC stepped in and got a court order to stop him from doing this again and banned him from being a company leader. They are still figuring out how much money he has to pay back.

Disclaimer: all facts are drawn from the SEC's own filings; the claims described are allegations unless and until a court rules or the parties settle, and some cases end in dismissal.

How the Alleged Scheme Worked

1. Acquisition and Initial Promises In August 2017, Helios and Matheson Analytics Inc. (HMNY) acquired a majority stake in MoviePass. Shortly after, HMNY's CEO, Theodore J. Farnsworth, and MoviePass CEO, J. Mitchell Lowe, began telling the public that MoviePass could be profitable at its new $9.95 monthly subscription price.
2. Misrepresenting Profitability and Analytics Farnsworth and Lowe repeatedly stated in company filings, press releases, and media appearances that MoviePass could achieve profitability, partly through HMNY's supposed data analytics capabilities. They claimed this despite the service facing 'debilitating negative cash flows'.
3. Sabotaging Subscriber Usage To mask the unsustainable business model and mounting losses, Farnsworth and Lowe devised 'fraudulent tactics' to prevent heavy users from accessing the service. They falsely told the public that usage had declined naturally or due to users violating terms and conditions.
4. Approving False Invoices for Bonuses Between January and April 2018, Farnsworth and Lowe approved false invoices submitted by Khalid Itum, a former MoviePass executive. These invoices disguised bonus payments to Itum as payments for services purportedly provided by an entity he controlled.
5. Illegally Obtaining Funds Through the submission of these false documents, Itum wrongfully obtained over $310,000 from HMNY and MoviePass for his personal benefit, with Farnsworth and Lowe's approval.
6. Unsustainable Business Model Leads to Bankruptcy Ultimately, MoviePass's business model proved unsustainable. HMNY and its subsidiaries, including MoviePass, were forced to file for Chapter 7 liquidation bankruptcy in January 2020.

The Enforcement Action

On December 23, 2024, the U.S. District Court for the Southern District of New York entered a consent judgment against Theodore J. Farnsworth, former CEO of Helios & Matheson Analytics Inc. (HMNY), for making materially false and misleading statements concerning HMNY’s subsidiary, MoviePass, Inc. The judgment provides permanent injunctive relief, a conduct-based injunction, and an officer and director bar. Farnsworth consented to these terms. The SEC’s complaint also sought disgorgement, prejudgment interest, and civil penalties, which will be determined by the court at a later date. The litigation against the other defendants continues.

Named in this action: Theodore J. Farnsworth, J. Mitchell Lowe, Khalid Itum.

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