The former CEOs of MoviePass and its parent company have been charged in a securities fraud case

Two former execs at MoviePass and its former parent company Helios and Matheson Analytics (HMNY) — Ted Farnsworth and Mitch Lowe — have been charged in a securities fraud case, according to court documents.

Per a Department of Justice statement, the court documents allege that Farnsworth and Lowe "engaged in a scheme to defraud investors through materially false and misleading representations relating to HMNY and MoviePass's business and operations to artificially inflate the price of HMNY's stock and attract new investors."

The statement says: "Farnsworth and Lowe are each charged with one count of securities fraud and three counts of wire fraud. If convicted, they each face a maximum penalty of 20 years in prison on each count."

The indictment alleges MoviePass's "unlimited" $9.95 plan was "tested, sustainable, and would be profitable or break even on subscription fees alone." It alleges Farnsworth and Lowe knew that the $9.95 plan was "a temporary marketing gimmick to grow new subscribers and, in turn, artificially inflate HMNY's stock price and attract new investors." The result was the MoviePass lost money from doing the unlimited plan.

Additionally, Farnsworth and Lowe allegedly made false claims that HMNY "possessed and used technologies – like 'big data' and 'artificial intelligence' platforms – to generate revenue by analyzing and monetizing the data MoviePass collected from subscribers." However, the indictment alleges both knew HMNY "did not possess these technologies or capabilities to monetize MoviePass's subscriber data or incorporate these technologies into the MoviePass application."

Farnsworth and Lowe are also alleged to have falsely claimed that MoviePass's "cost of goods, as reflected in the number of tickets each subscriber purchased using their subscription, was naturally declining over time consistent with their stated expectations."

The court documents allege Farnsworth and Lowe "directed MoviePass employees to implement numerous tactics to prevent certain subscribers from using the purportedly 'unlimited' service for which they had paid to try to ease MoviePass's cash shortfalls."

More to come...