How the demise of MoviePass’s first rendition turned into a scandal

November 8, 2022, 12:12 PM UTC

Next season’s best-selling drama film might just be about MoviePass.

The collapse of the first rendition of the movie-enthusiast subscription service—which had, during its prime, enabled some 3 million customers to see one movie a day in theaters for merely $9.95 a month—had seemed a dramatic enough tale when mounting losses ultimately spun MoviePass’s parent company into bankruptcy.

Then last week, two of MoviePass’s former executives, the ex-Chairman Ted Farnsworth and ex-CEO Mitch Lowe (who is a Netflix co-founding executive), were criminally charged by the Department of Justice, alleging the executives engaged in a scheme to artificially inflate the share price of MoviePass’s parent company, Helios and Matheson Analytics, in order to attract new investors. 

Fortune learned, this past Friday, that Farnsworth was arrested in Washington, D.C., according to court records. An arrest warrant is still out for Lowe, per the records, though he doesn’t appear to have been arrested yet and was unable to be reached for comment through his personal website or his public speaking agency.

Farnsworth and Lowe allegedly made false claims to investors regarding MoviePass’s “unlimited” plan, saying that MoviePass could break even or achieve profitability via subscription fees alone, according to the Department of Justice. Meanwhile, Farnsworth and Lowe allegedly knew the $9.95 plan was a “temporary marketing gimmick” used to grow the subscriber base and was used to artificially inflate MoviePass’s parent company’s stock price. The former MoviePass executives are being prosecuted by the Department of Justice, and the FBI New York Field Office is investigating the case. That’s in addition to charges from the SEC for allegedly making materially false or misleading statements concerning key aspects of MoviePass’s business model.

In the meantime, Farnsworth has hired George Terwilliger III, who was nominated as Deputy Attorney General for the Department of Justice during the George H. W. Bush Administration, as his attorney, according to the court filings. It’s unclear yet who is representing Lowe, or whether he has hired an attorney.

At this point, these claims are merely charges. The Department of Justice presumes all defendants innocent until proven guilty in court. 

But it’s still a total mess. And I assume it’s not the best news for MoviePass co-founder Stacy Spikes, who had re-purchased MoviePass’s assets and is currently embarking on an attempt to relaunch the service from the ashes. (To be clear, Spikes has not been named in any of the charges. A MoviePass spokesperson didn’t respond to a request for comment.)

Spikes has said he was pushed out of MoviePass after he recommended raising the prices for the service. Raising those prices may not have been such a bad idea.

Please note…Yesterday’s Q&A indicated that Xos had filed for bankruptcy. It has not, and I regret the error.

See you tomorrow,

Jessica Mathews
Twitter: @jessicakmathews
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