MoviePass Probed by New York Attorney General

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MoviePass CEO Mitch Lowe

A CNBC source said the attorney general is using the Martin Act, which is a statute designed to protect investors in New York.

MoviePass is under investigation by New York's attorney general, who is looking for evidence that parent Helios and Matheson Analytics may have misled investors about the financial well-being of the company, The Hollywood Reporter confirmed Wednesday.

"We are aware of the New York attorney general's inquiry and are fully cooperating with it," Helios and Matheson told THR. "We believe our public disclosures have been complete, timely and truthful and we have not misled investors."

Representatives for New York Attorney General Barbara Underwood did not respond to a request for comment, but CNBC, which first reported the news citing people with knowledge of the situation, said an investigation is in the early stages.

The CNBC source said the attorney general is using the Martin Act, which is a statute designed to protect investors in New York.

Separately, Helios and Matheson is also the subject of shareholder lawsuits, as its stock has lost more than 99 percent of its value since acquiring MoviePass, which signed up 3 million subscribers who paid $9.95 a month for a movie ticket per day.

MoviePass lost millions of dollars on the deal and when its stock plunged to a few pennies, it engineered a 250-for-1 reverse split, only to watch the stock sink to pennies again.

The company has since restricted its users to just three movies monthly to save money and it is again in the process of reverse-splitting its shares.

On Wednesday, shares of Helios and Matheson rose 4 percent to two cents apiece, but sunk 8 percent after the closing bell.

MoviePass intends on making money by marketing films and other products to its subscribers, selling data related to them and it hopes a large chunk will see fewer than the number of movies allowed, since the service largely pays full price for the tickets its subscribers use.

The company also has competition from Sinemia, an independent service, and AMC Entertainment, the theater chain that launched its own subscription service.

MoviePass, which raised $65 million in new funding a few weeks ago, also is acquiring movies, its second being The Reckoning, a horror pic directed by Neil Marshall and set in the 17th century.