Former MoviePass CEO Mitch Lowe has pleaded guilty to a securities fraud charge related to his role in defrauding investors of the company's monthly movie subscription service.
Lowe pleaded guilty Monday to conspiring to inflate MoviePass’s stock price by lying about the profitability and sustainability of the $9.95-a-month unlimited plan in exchange for dismissal of securities and wire fraud charges. He faces a maximum of five years in prison, with the expectation that he will receive a lesser sentence for assisting in the ongoing investigation and case, plus a fine of up to $250,000 or double the amount he earned from the alleged scheme.
“Mitch is a good man who is trying to move on with his life,” his attorneys Margot Moss and David Oscar Markus said in a statement. “He has accepted responsibility for his actions in this case and will continue to try to make things right.”
In 2022, federal prosecutors filed an indictment in Florida federal court against Lowe, Ted Farnsworth, CEO of Helios and Matheson Analytics, which acquired MoviePass in 2017, and Khalid Itum, a business development executive for the company. Lowe was accused of making false and misleading statements about MoviePass’s monthly subscription offering, including that it would be profitable or break even on subscription fees alone and that the number of tickets purchased by subscribers was declining, among other things.
Prosecutors said Lowe and Farnsworth knew MoviePass was losing money because of a marketing gimmick designed to drive subscriber growth and that the company was actively blocking users from using the service. The employees were instructed to throttle high-activity subscribers, according to the indictment.
Asked about AMC’s claim that MoviePass would eventually lower prices, Lowe denied the claim and said, “They don’t understand our business model.” Prosecutors cited numerous statements to the press and in court filings in which he extolled the viability of the plan, intended to inflate the company’s stock.
After the conviction of Lowe, who wrote an autobiography about the rise and fall of MoviePass, prosecutors will drop the securities and wire fraud charges, which carried 20-year sentences per count, according to the plea agreement. The government estimated the scheme led to losses of more than $300 million, but agreed to lower that figure to $25 million, which will be taken into account at sentencing, as part of the deal.
The Securities and Exchange Commission continues to pursue a case against Lowe alleging violations of federal securities laws involving key aspects of MoviePass's business model. The allegations allege that Lowe knowingly approved false invoices that disguised bonus payments as services provided by an entity controlled by Itum.
Farnsworth faces trial starting next year.
In 2021, Lowe, Farnsworth and Helios and Matheson settled a Federal Trade Commission lawsuit accusing them of deceptive marketing practices and actively blocking subscribers from using the platform. Under the settlement, executives and the company are prohibited from “misrepresenting their business and data security practices” and “must implement comprehensive information security programs” in any future business initiatives.
In February, a jury found Itum guilty of two counts of wire fraud, alleging that he embezzled at least $260,000 from MoviePass to repay money he borrowed to fund a party at the Coachella Valley Music and Arts Festival in 2018.