SEC sues former MoviePass executives for fraud

The US Securities and Exchange Commission has filed a lawsuit against two former MoviePass executives. In a federal complaint seen by , the agency accused Theodore Farnsworth and Mitch Lowe on Monday of misleading investors about the viability of the company’s $9.95 per month business model.

Farnsworth was the chief executive officer of , the parent company of MoviePass between 2017 and 2020. Lowe led MoviePass between 2016 and its . The SEC alleges Farnsworth and Lowe “intentionally” and “repeatedly” shared false information.

“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,” the complaint states.

In addition to financial penalties, the SEC is seeking to prevent both Farnsworth and Lowe from serving in director or officer positions in any company that’s required to register securities with the agency. The SEC’s lawsuit also names former MoviePass business development executive Khalid Itum as a defendant. Itum allegedly pocketed $310,000 by submitting false invoices to the company. Last year, Helios and Matheson, Farnsworth and Lowe settled a lawsuit from the Federal Trade Commission related to allegations they mislead customers and failed to .

“The complaint concerns matters subject to an investigation that the company and other news outlets publicly disclosed nearly three years ago, and Mr. Farnsworth’s legal team will maintain the challenge to this complaint,” Chris Bond, a spokesperson for Ted Farnsworth told Bloomberg. “Mr. Farnsworth continues to maintain that he has always acted in good faith in the best interests of his companies and shareholders.”

The suit comes as a new version of MoviePass attempts to reestablish itself under the . The company recently launched a beta service in Chicago, Dallas and Kansas City, offering packages that .