Theodore Farnsworth, the former CEO of MoviePass' parent company, pleaded guilty Tuesday to securities fraud after federal prosecutors said he misled investors about the company's “unlimited” subscription plan.
Mr. Farnsworth, 62, of Miami, also pleaded guilty in the Southern District of Florida to conspiracy to commit securities fraud as leader of another publicly traded company, Vinco Ventures, Inc. He tried to inflate the stock price and took millions of dollars. of the company for himself, according to prosecutors and court documents.
He faces a maximum of 20 years in prison for the securities fraud count related to his leadership of MoviePass and a maximum of five years in prison for the conspiracy count related to his leadership of Vinco.
“Mr. Farnsworth was eager to accept responsibility for his conduct,” Sam Rabin, Mr. Farnsworth's attorney, said in an email Tuesday evening. “The most important step was pleading guilty to the crimes he was accused of. He did that today.”
In 2017, when Mr. Farnsworth was the CEO of Helios and Matheson Inc., which owned a majority stake in MoviePass, the plan allowed subscribers to watch “unlimited” movies in theaters for $9.95 a month.
Mr. Farnsworth and J. Mitchell Lowe, then the CEO of MoviePass, told investors in interviews that their plan was not too good to be true, had been tested and was sustainable, prosecutors said. Mr. Farnsworth knew all along that the scheme was flawed and he misled investors to boost stock prices, prosecutors said.
“He disguised the fact that MoviePass' subscription model was a money-losing gimmick,” Brent S. Wible, the deputy assistant attorney general, said in a statement Tuesday about Mr. Farnsworth.
Mr. Farnsworth also told investors in interviews and press releases that his company had big data and artificial intelligence that allowed it to increase the amount of money raised from MoviePass subscribers, prosecutors said. But that claim was also untrue and the analytics company “did not possess the types of technologies that could be used to monetize MoviePass' subscriber data,” prosecutors said in court filings.
Details of Mr. Farnsworth's guilty plea were not immediately available. Mr. Lowe pleaded guilty in September to conspiracy to commit securities fraud, according to court records. Mr Lowe faces a maximum prison sentence of five years.
“Mitch Lowe is a good man with a history of good deeds,” David Oscar Markus and Margot Moss, Mr. Lowe's lawyers, said in a statement on Tuesday. “But like all of us, he's not perfect. He admitted his wrongdoing in this matter early on and is doing everything he can to make amends.”
The unlimited subscription paid the cinemas full price for each admission – and was a financial disaster. The plan was based on the hope that more subscribers would pay the relatively meager monthly fee and not use the service. That was a miscalculation: three million people signed up and took full advantage.
MoviePass went bankrupt in 2019. The company returned in 2022 and now uses a tiered, credit-based compensation system with no unlimited options.
Mr. Farnsworth has a status conference scheduled for July, according to court records. No sentencing date has been scheduled, Mr. Rabin said.
