Theodore Farnsworth, the former CEO of Helios & Matheson Analytics, the parent company of MoviePass, has pleaded guilty to securities fraud and conspiracy to commit securities fraud.
The charges, filed by the Department of Justice, highlight a scheme that defrauded investors between 2017 and 2019 by making false claims about MoviePass's business model and technological capabilities.
Ex-MoviePass CEO Admits Fraud, Misleading Investors About AI and Subscription Model
Farnsworth admitted in court that he and co-conspirators misled the public to artificially inflate the company's stock price. Among their tactics was promoting the unsustainable $9.95-a-month unlimited movie subscription plan as a viable business model.
Despite these claims, Farnsworth knew the plan was losing money and was primarily a marketing gimmick designed to attract investors and boost Helios & Matheson's stock.
The fraud extended to false claims about the company's technological capabilities. Farnsworth publicly stated that Helios & Matheson used advanced technologies like artificial intelligence and big data to monetize subscriber information, Deadline said.
However, he was aware the company did not possess these technologies or use them as claimed.
The Department of Justice called this case one of its first examples of "AI washing," where companies falsely promote artificial intelligence capabilities to gain investor confidence.
The FBI also criticized Farnsworth's actions, describing them as deliberate lies to defraud investors and enrich himself and his co-conspirators.
Ex-CEO Faces Up to 25 Years for Securities Fraud
The scheme unraveled as MoviePass burned through cash and its subscription model failed to deliver profits.
The company's practices, including restricting heavy users from accessing movies, further eroded trust. By 2019, MoviePass had shut down, leaving investors with massive losses.
According to CNN, Farnsworth pleaded guilty to one count of securities fraud, which carries a maximum sentence of 20 years, and one count of conspiracy to commit securities fraud, which could result in an additional five years. Sentencing has not yet been scheduled.
MoviePass, initially hailed as a revolutionary service, gained over three million subscribers at its peak. However, its unsustainable model quickly led to its downfall. In 2022, the company was acquired out of bankruptcy by its original co-founder, Stacy Spikes, who is working to rebuild the brand with a more sustainable approach.
Farnsworth's plea follows a similar admission of guilt by former MoviePass CEO Mitch Lowe, who faces sentencing in March. The case serves as a cautionary tale for investors and a warning to companies tempted to mislead in pursuit of financial gains.
