Movie Theater

Too Good to Be True: MoviePass Masterminds Indicted for Securities Fraud

Alyssa GarciaNews & Insights

By Alyssa R. Garcia

The SEC recently indicted the executives behind the unlimited movie theater ticket company, MoviePass, for securities fraud after they allegedly inflated stock prices to investors. Mitchell Lowe, former CEO of MoviePass, and Theodore Farnsworth, the former CEO and chairman of Helios + Matheson Analytics Inc. (MoviePass’s parent company) are alleged to have “deliberately and publicly engaged in a fraudulent scheme designed to falsely bolster their company’s stock price.”[1]

MoviePass aimed to return moviegoers to theaters, as many had begun simply streaming films from home during an era where the phrase “Netflix and Chill” became commonplace. The premise was that MoviePass “would purchase movie tickets in bulk at full price and offer them for free to users in exchange for a flat monthly fee.”[2] To do this, MoviePass entered into a trial-run partnership with one of the largest movie theater chains in America: AMC Theaters.[3] In 2017, Helios + Matheson purchased a majority share of MoviePass and introduced a $9.95 per month subscription service that allowed consumers one movie ticket each day.[4] This design resulted in a sharp increase in subscribers, who were able to see approximately 30 movies per month for the price of one regular cinema ticket.[5] The MoviePass model resulted in over one million subscribers by the year’s end, which soon proved to be unmanageable for the company and caused AMC to withdraw from the partnership.[6]

The $9.95 price point for MoviePass’s generous access continued to draw in substantial audiences. At its peak, MoviePass boasted over three million subscribers who collectively watched up to 50 million movies each year.[7] Despite the massive interest in the service, MoviePass could not sustain the structure of its plan; a combination of “low subscription costs and outsized subscriber base” resulted in significant financial losses for the company.[8] To reduce its expenses, MoviePass restricted new subscribers to three films per month, prevented users from buying multiple tickets to popular movies, and temporarily adopted a “surge pricing” model charging higher prices for in-demand films and showtimes.[9] The attempts to generate more income were not successful in maintaining the company’s business model, and after struggling through website outages and difficulty with their subscription cancellation process, MoviePass finally shuttered in 2019.[10]

Lowe and Farnsworth are alleged to have known all along that MoviePass’s subscription plan was not sustainable, and that it was in fact meant to be a temporary “marketing gimmick” used to add subscribers and inflate the stock price for investors.[11] However, prosecutors allege that Lowe and Farnsworth’s claims that the subscription service “was tested, sustainable and would be profitable or break even on subscriptions fees alone” were false and MoviePass in fact lost money from the plan.[12] Further, Lowe and Farnsworth are accused of falsely claiming to investors that the cost of the tickets purchased was naturally declining as subscribers saw fewer movies over time, when in reality they were deliberately preventing some subscribers from fully utilizing the service as a means to lower costs.[13] They also allegedly misled investors by claiming that MoviePass was benefitting from other revenue streams, which simply never existed.[14]

The former executives are each charged with one count of securities fraud and three counts of wire fraud.[15] To be convicted of securities fraud, the government must prove that the former executives knowingly and intentionally made a false statement of material fact to individuals who justifiably relied on that statement and suffered economic losses as a result.[16] Prosecutors allege that the statements detailed above, among others, constitute securities fraud. Federal wire fraud requires proving that a defendant participated in a scheme to intentionally defraud another and used interstate wire communications in furtherance of that scheme.[17] Here, the indictment includes allegations that Lowe and Farnsworth issued press releases via interstate wires in furtherance of their scheme to defraud, constituting wire fraud.[18] Lowe and Farnsworth face up to 20 years in prison if convicted.

Since MoviePass’s decline, AMC has created its own subscription product, AMC Stubs A-List, where subscribers pay a monthly fee of approximately $20 (varying based on location) to watch three movies each week.[19] As of 2020, AMC had nearly one million subscribers to its MoviePass equivalent product.[20] Cinemark and Regal Cinemas have also debuted similar programs.[21] However, MoviePass is not down for the count just yet. MoviePass’s founder, Stacy Spikes, is set to relaunch the company in summer 2023, offering the same services as before but with tiered pricing between $10 and $30.[22] The pricing tiers will be associated with a credit system, such that each subscriber receives a certain number of credits each month based on price level, and tickets for peak movie times cost more credits than those at less popular showtimes.[23] This time, MoviePass has also entered into partnerships with theaters to obtain reduced pricing for its tickets, so as not to face the steep costs it did the first time around.[24]

MoviePass is reentering the industry in a post-Covid landscape where theater viewership is down. Indeed, “only 14% of adults said they strongly preferred seeing a movie for the first time in a theater, while 36% said they would much rather stream the movie at home.”[25] Despite this, films like Top Gun: Maverick and Spider-Man No Way Home still managed to break box office records, showing that to make a billion-dollar movie, a theatrical arm is necessary, no matter how popular streaming services are.[26] It remains to be seen whether the revived MoviePass will achieve its mission now that it is back under its original ownership.


[1] Former CEOs of MoviePass and Parent Company Charged in Securities Fraud Scheme, The United States Department of Justice (Nov. 4, 2022), https://www.justice.gov/opa/pr/former-ceos-moviepass-and-parent-company-charged-securities-fraud-scheme.

[2] Karla Rodriguez, The Life, Death, and Potential Rebirth of MoviePass, COMPLEX (Mar. 8, 2022), https://www.complex.com/pop-culture/moviepass-explainer/.

[3] Id.

[4] Id.

[5] Ryan Faughnder, MoviePass to Shut Down Saturday After Failing to Raise Capital, The Los Angeles Times (Sept. 13, 2019), https://www.latimes.com/entertainment-arts/business/story/2019-09-13/moviepass-is-officially-dead.

[6] Rodriguez, supra note 2.

[7] Marisa Dellatto, Beleaguered MoviePass Says It Will Relaunch Around Labor Day, Forbes (Aug. 22, 2022), https://www.forbes.com/sites/marisadellatto/2022/08/22/beleaguered-moviepass-says-it-will-relaunch-around-labor-day/?sh=51ded66e807a.

[8] Rodriguez, supra note 2.

[9] Id.

[10] Id.

[11] Former CEOS of MoviePass and Parent Company Charged in Securities Fraud Scheme, The United States Department of Justice (Nov. 4, 2022), https://www.justice.gov/opa/pr/former-ceos-moviepass-and-parent-company-charged-securities-fraud-scheme.

[12] Id.

[13] Id.

[14] Id.

[15] Id.

[16] See S.E.C. v. Wyly, 117 F. Supp. 3d 381, 385 (S.D.N.Y. Jul. 7, 2015).

[17] See United States v. Proffit, 49 F.3d 404, 406 n.1 (8th Cir. 1995); see also 18 U.S.C. § 1343.

[18] Indictment at 29-30, United States v. Farnsworth and Lowe, Case No. 22-20521-CR-SCOLA/GOODMAN (Nov. 2, 2022), https://www.justice.gov/criminal-vns/file/1550921/download.

[19] Ryan Faughnder, MoviePass to Shut Down Saturday After Failing to Raise Capital, The Los Angeles Times (Sept. 13, 2019), https://www.latimes.com/entertainment-arts/business/story/2019-09-13/moviepass-is-officially-dead.

[20] Ryan Faughnder, MoviePass Died. but This Movie Theater Subscription Service Hit a Milestone, Los Angeles Times (June 1, 2022), https://www.latimes.com/entertainment-arts/business/story/2022-06-01/how-a-movie-theater-ceo-feels-about-subscription-milestones-top-gun-and-box-office-recovery.

[21] Id.

[22] Ziad Buchh, MoviePass is Returning. Here’s What You Need to Know, NPR (Aug. 27, 2022) https://www.npr.org/2022/08/27/1119670180/moviepass-cost-start-date-movies-cinema.

[23] Id.

[24] Id.

[25] Derek Baine, MoviePass, Once Thought to be a Fierce Competitor to Netflix, Relaunching This Summer, Forbes (Feb. 21, 2022) https://www.forbes.com/sites/derekbaine/2022/02/21/moviepass-once-thought-to-be-a-fierce-competitor-to-netflix-relaunching-this-summer/?sh=6e33beee639f.

[26] Jonathan Landrum, Jr., ‘Top Gun: Maverick’ is the First Movie to Top Both Memorial Day and Labor Day Box Office, The Los Angeles Times (Sept. 4, 2022) https://www.latimes.com/entertainment-arts/story/2022-09-04/spider-man-no-way-home-box-office-labor-day.