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As MoviePass works toward a relaunch under new leadership, the SEC is taking action against three former execs for alleged federal securities law violations in connection with the previous iteration of the service.
The SEC on Monday filed a complaint against Ted Farnsworth, Mitch Lowe and Khalid Itum in New York federal court. Farnsworth was CEO of Helios and Matheson Analytics, which acquired MoviePass in 2017, Lowe was MoviePass’ CEO, and Itum was a business development exec for the service.
“From August 2017 to at least March 2019, Farnsworth and Lowe, the CEOs of HMNY and MoviePass, respectively, intentionally and repeatedly disseminated to the public materially false or misleading statements concerning MoviePass and key aspects of MoviePass’s business model,” states the complaint, which is embedded below.
The SEC alleges the execs lied about how MoviePass could become profitable and then, when faced with dubious finances, opted to surreptitiously curb heavy use of the service instead of coming clean.
The complaint continues, “In addition to the above fraud, between January and April 2018, Farnsworth and Lowe approved false invoices that Itum, a MoviePass executive, submitted to HMNY and MoviePass. Consequently — and through Itum’s submission of additional false documents — Itum wrongfully obtained more than $310,000 from HMNY and MoviePass for his personal benefit.”
The SEC is seeking a permanent injunction banning defendants from violating relevant federal securities laws, and orders requiring them to disgorge ill-gotten profits and pay civil penalties. It also wants the court to bar both Farnsworth and Lowe from serving as an officer or director of any company that’s required to register securities with the SEC and directly or indirectly promoting any such company.
Chris Bond, a spokesperson for Ted Farnsworth, on Tuesday sent The Hollywood Reporter this statement: “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. Mr. Farnsworth continues to maintain that he has always acted in good faith in the best interests of his companies and shareholders.”
Additionally, Itum’s legal team shared a statement to THR that read, “Khalid Itum has been unfairly targeted by the SEC in this 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.”
The law firm representing Lowe, Kobre & Kim, said in a statement: “We disagree with the SEC’s characterization of Mitch’s conduct, including allegations about statements made about the progress in building MoviePass. 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.”
In June 2021, Helios and Matheson, Farnsworth and Lowe reached a settlement with the Federal Trade Commission in connection with allegations it deceptively marketed a “one movie per day” service but actively prevented subscribers from using the platform as advertised and that it failed to protect users’ data.
Under the FTC’s deal, the execs and the company are all barred from “misrepresenting their business and data security practices” and “must implement comprehensive information security programs” in any future corporate endeavors, which will have heavy FTC oversight.
Helios and Matheson Analytics filed for bankruptcy in 2020 and later that year reached an $8.25 million settlement in a securities class action.
MoviePass is set to relaunch under the leadership of Stacy Spikes, who bought the company out of bankruptcy. It’s currently in beta testing in three markets: Chicago, Kansas City and Dallas. Users who joined a free (and now full) waitlist will have priority access and will get 10 invitations they can share with friends; at this point, receiving an invitation is the only way to join, according to the website. Pricing will depend on market, either $10, $20 or $30 per month, and come with a certain amount of credits to use toward movies.
Spikes, who is not involved in the SEC litigation, has not yet responded to a request for comment.
Sept. 28, 4:22 p.m. Updated with a statement from Itum’s and Lowe’s legal representatives.
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