Former MoviePass Execs Are Being Sued by the SEC for Misleading Investors and the Public

By Spencer Hulse Spencer Hulse has been verified by Muck Rack's editorial team
Published on October 4, 2022

In 2017, MoviePass started offering an incredible deal. For $9.95 per month, members could join an all-you-can-watch subscription plan. The public swarmed toward the offer, which MoviePass executives Theodore Farnsworth and Mitch Lowe openly said was rigorously tested and capable of turning a profit. However, behind closed doors, they knew it was a gimmick with an unsustainable price. Now, the former MoviePass execs are being sued by the SEC for their lies.

When MoviePass first started, it cost around $40 per month. But while the price was sustainable, streaming services were disrupting the traditional movie experience. The shift in pricing came as new leadership tried to compete, cutting prices to about $10 per month. While the idea of seeing a movie per day for such a low price sounds incredible, it ended up being a nightmare.

Not only did the logistics side of things become a complete mess, but in 2018, the company was losing approximately $21 million a month. The claims of profitability made by Farnsworth and Lowe quickly proved false, and by 2020, the company filed for bankruptcy.

MoviePass is now relaunching its service under new management. But while things are changing, the former MoviePass execs are in the SEC’s sights and in the process of being sued.

According to the SEC, Farnsworth and Lowe lied about the business model’s viability and used “fraudulent tactics to prevent MoviePass’s heavy users from using the [unlimited subscription service].” Moreover, the SEC has accused them of violating securities laws and profiting from the fraud.

The SEC has also named Khalid Itum, a MoviePass executive, who submitted false invoices and gained over $310,000 in personal benefits.

Farnsworth’s spokesperson, Chris Bond, said that he intends to continue to fight the charges. He also stated that the complaint deals with matters that were publicly disclosed almost three years ago and that “Mr. Farnsworth continues to maintain that he has always acted in good faith in the best interests of his companies and shareholders.”

Similarly, Lowe’s lawyers spoke out, saying that they disagreed with the SEC’s characterization of his conduct. They also said, “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.”

However, despite the former executives standing their ground, there are plenty of stories out there pushing the SEC allegations forward.

Farnsworth and Lowe attempted to slow the cash burn in multiple ways. It started with restricting access to some films and AMC theaters. Then, in early 2018, Lowe allegedly instructed staff members to block access to multiple Bollywood films that were hurting the company financially.

There are also allegations around something called “Project 2%” that aimed to keep the top moviegoers from using the subscription they purchased. It involved employees subjecting the users to “password disruption” and “ticket verification.”

The truth will come out as the former MoviePass execs are sued by the SEC. Regardless, MoviePass is back with tiered pricing and a new system that is set to use credits. And considering it received 463,000 sign-ups within 24 hours of opening a waitlist, people are clearly happy to see its return.

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By Spencer Hulse Spencer Hulse has been verified by Muck Rack's editorial team

Spencer Hulse is the Editorial Director at Grit Daily. He is responsible for overseeing other editors and writers, day-to-day operations, and covering breaking news.

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