MoviePass CEO Pleads Guilty to Fraud - Unlimited Plan Scandal

MoviePass Executive Admits to Fraudulent Practices

Theodore Farnsworth, formerly the chief executive of MoviePass’s parent company, has admitted guilt on charges of securities fraud and conspiracy. These charges stem from accusations of intentionally misleading investors regarding the viability of the service’s “unlimited plan.”

Guilty Pleas and Company Involvement

Farnsworth also entered a guilty plea concerning a conspiracy to commit securities fraud while serving as the chief executive of Vinco Ventures, a company traded publicly.

In 2017, Helios & Matheson Analytics (HMNY), the parent organization of both MoviePass and Vinco, gained a controlling interest in MoviePass. Subsequently, a revamped “unlimited” plan was introduced.

The "Unlimited" Plan Deception

This new plan allowed subscribers to view an unlimited number of films in theaters for a monthly fee of $9.95.

According to the Department of Justice, Farnsworth and his associates made false assertions about the plan’s sustainability. They claimed it would either generate a profit or at least break even solely through subscription revenue.

However, Farnsworth was fully aware that the plan was a short-term promotional tactic. Its purpose was to attract new subscribers, artificially boost HMNY’s stock value, and entice further investment.

In reality, the “unlimited” plan resulted in financial losses for MoviePass.

False Claims Regarding Data Monetization

Farnsworth also misrepresented the capabilities of HMNY to investors. He stated that the company utilized “big data” and artificial intelligence to generate revenue.

This revenue, he claimed, would be derived from monetizing the data collected from MoviePass subscribers. However, the Department of Justice asserts that Farnsworth knew HMNY lacked the necessary infrastructure to achieve this.

Misleading Statements About Revenue Streams

Furthermore, he falsely indicated that multiple revenue sources, beyond subscription fees, were positively impacting the company’s profitability.

Farnsworth knew that MoviePass did not possess sufficient non-subscription revenue streams to become financially self-sufficient.

Department of Justice Response

“Theodore Farnsworth — formerly the CEO of two publicly traded companies — repeatedly lied to the public to artificially inflate these companies’ stock prices, defraud investors, and enrich himself and his co-conspirators,” stated Principal Deputy Assistant Attorney General Brent S. Wible.

“He concealed that MoviePass’ subscription model was a money-losing gimmick and falsely claimed that HMNY used artificial intelligence to monetize MoviePass’ subscriber data, among other misrepresentations. The Criminal Division is committed to protecting investors from criminals who engage in fraudulent schemes, including those that employ AI washing.”

Fraudulent Activities Extended to Vinco Ventures

The Department of Justice reports that from November 2020 to September 2024, Farnsworth and his collaborators employed similar deceptive strategies to defraud investors of Vinco Ventures.

Potential Penalties

Farnsworth faces a potential prison sentence of up to 20 years for the securities fraud charge related to MoviePass. He could also receive up to five years in prison for the conspiracy charge linked to Vinco.