Agreed Factual Basis for Guilty Plea — United States v. Lowe (S.D. Fla., Document 146)

Summary

An Agreed Factual Basis for Guilty Plea, Document 146, entered on the docket September 16, 2024 in United States of America v. J. Mitchell Lowe, Case No. 22-20521-CR-LEIBOWITZ(s), in the U.S. District Court for the Southern District of Florida. It states that from in or around August 2017 through in or around March 2019, Lowe, the Chief Executive Officer of MoviePass Inc., conspired with Coconspirator 1 to commit securities fraud, in violation of Title 18, Section 371. It states that they agreed on false and misleading talking points about MoviePass's $9.95 "unlimited" plan, that HMNY fraudulently raised hundreds of millions of dollars from debt and equity offerings, and that on July 25, 2022 Lowe made materially false and misleading statements during sworn testimony. It states that Lowe received at least $388,224.13 in salary payments during the conspiracy.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Cite this document

“Agreed Factual Basis for Guilty Plea — United States v. Lowe (S.D. Fla., Document 146).” Original at ecf.flsd.uscourts.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/court-filing-usa-v-farnsworth-dkt-146-s-d-fla-988bfd94ff/, SHA-256 001b746cab30f5745d45cc8c0a91c3f329171789450ab27dae19cbd2c1211a58.

Full text

Case 1:22-cr-20521-DSL Document 146 Entered on FLSD Docket 09/16/2024 Page 1 of 18

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA

CASE NO.: 22-20521-CR-LEIBOWITZ(s)

UNITED STATES OF AMERICA

J. MITCHELL LOWE,

Defendant
----------------- I
AGREED FACTUAL BASIS FOR GUILTY PLEA

I. Beginning in or around August 2017 , and continuing through in or around March

2019, within the Southern District of Florida and elsewhere, the defendant, J. MITCHELL LOWE

(" LOWE"), the Chief Executive Officer of MoviePass Inc. ("MoviePass"), knowingly and

willfully conspired and agreed with Coconspirator 1, the Chief Executive Officer and Chairman

of the Board of Helios & Matheson Analytics Inc. (" HMNY"), to commit securities fraud , in

violation of Title 18, Section 371 .

2. MoviePass was a privately held company that offered a subscription service

through which subscribers paid a flat monthly fee in exchange for a certain number of movie tickets

per month. To use the service, a subscriber would select a movie, theater, and show time through

the MoviePass application on the subscriber 's smartphone, and then use a MoviePass-branded

debit card that was loaded with the cost of the movie ticket to pay at the selected theater.

3. HMNY was a public company that purported to be a leader in data ana lytics and

artificial intelligence. HMNY's common stock traded on NASDAQ.

4. By the summer of 2017, MoviePass was running out of money. LOWE was on the
Case 1:22-cr-20521-DSL Document 146 Entered on FLSD Docket 09/16/2024 Page 2 of 18

verge of shutting down MoviePass's business operati ons when he met Coconspirator 1. In the

course of discussions about a potential deal between HMNY and MoviePass, Coconspirator 1 told

LOWE that he was an expert in promoting stock and had access to large sums of capital from

sources on Wall Street.

5. Coconspirator 1 and LOWE agreed on a plan to use MoviePass to artificially inflate

HMNY 's stock price and fraudulently raise new money. As part of the agreed on plan, on August

15 , 2017, HMNY and Movie Pass jointly announced that:

a. HMNY had acquired a majority ownership interest in MoviePass (the
"Acquisition").

b. The Acquisition allowed MoviePass to introduce a new " unlimited" plan that
purported to allow subscribers the oppo1tunity to watch "any movie any theater any
day" for $9.95 per month .

c. HMNY would " increase shareholder value" by using HMNY's "big data" and
"artificial intelligence" capabilities to monetize MoviePass's subscriber data,
including from the new subscribers MoviePass expected to sign up as a result of its
newly-announced $9 .95 " unlimited" plan.

6. Coconspirator I and LOWE then agreed on a series of false and misleading talking

points, which Coconspirator I and LOWE repeated in press releases, SEC filings , interviews on

podcasts and on television, and in print and on line media, all of which were intended to reach, and

at times did in fact reach, investors and the general public throughout the United States, including

within the Southern District of Florida and elsewhere. Coconspirator 1 and LOWE appeared in

the media and reviewed and approved the press releases and SEC filings . Coconspirator 1 and

LOWE communicated regularl y throughout the conspiracy - in-perso n, by telephone and by text

message - to discuss what they would say in joint and solo media appearances to make misleading

positive statements about HMNY and MoviePass to a1tificially inflate HMNY's stock price and

attract new investors.

2
Case 1:22-cr-20521-DSL Document 146 Entered on FLSD Docket 09/16/2024 Page 3 of 18

7. Specifically, Coconspirator 1 and LOWE agreed on the following talking points:

a. MoviePass's new $9.95 " unlimited" plan was tested, sustainable, and would be
profitable or break even on subscription fees alone;

b. HMNY had technology and capabilities it would use, and was using, to generate
revenue by analyzing and monetizing MoviePass 's subscriber data;

c. MovicPass also had multiple non-subscription revenue streams that would make
MoviePass profitable and even self-sufficient rather than dependent on HMNY for
funding ; and

d. MoviePass's cost of goods, as reflected in the number of tickets each subscriber
purchased using his or her subscription, was naturally declining over time
consistent with Coconspirator l 's and LOWE's stated expectations.

8. All of these representations, which were made to artificially inflate HMNY's stock

price and fraudulently attract new investors, were materially false and misleading. In truth and in

fact, and as Coconspirator 1 and LOWE knew:

a. The $9.95 "unlimited" plan was a temporary marketing gimmick to drive subscriber
growth, and MoviePass was losing money as a result;

b. HMNY did not possess the technology or capabilities to generate revenue by
analyzing MoviePass 's subscriber data and had not integrated any HMNY
technology or capabi lities into the MoviePass application ;

c. MoviePass did not have non-subscription revenue streams that would make
MoviePass self-sufficient or otherwise offset the losses MoviePass experienced as
a result of the unprofitable $9.95 " unlimited" plan; and

d. Behind the scenes, MoviePass was actively preventing subscribers from using the
purportedly "unlimited" service for which they had paid because Coconspirator 1
and LOWE personally directed MoviePass employees to "throttle" subscribers who
most frequently used the service to buy movie tickets and then Coconspirator 1 and
LOWE concealed the true nature of their "tactics" from investors and subscribers.

9. As a result of the conspiracy, HMNY fraudulently raised hundreds of millions of

dollars from debt and equity offerings. This included money raised from three sets of conve1tible

notes in November 2017, January 2018 , and June 2018, as well as from three sets of equity

offerings in February 2018, April 2018, and October 2018.

3
Case 1:22-cr-20521-DSL Document 146 Entered on FLSD Docket 09/16/2024 Page 4 of 18

I 0. Coconspirator I and LOWE stood to personally benefit from the conspiracy in

multiple ways. Among other things, Coconspirator 1 's and LOWE's employment agreements

provided for the payment of multi-million-dollar milestone bonuses based on a percentage increase

in the public market valuation of HMNY.

11. The U.S. Securities & Exchange Com mission (" SEC") later investigated

Coconspirator 1 and LOWE for securities fraud . On July 25, 2022, to conceal the existence of the

conspiracy from the SEC, LOWE made materially false and misleading statements during sworn

testimony. For example, when asked about whether ce1tain actions - like password resets and

ticket verification - targeted subscribers based on their usage, LOWE falsely claimed that usage

was not a factor when, in truth, it was the so le reason.

Examples of Materially False and Misleading Representations
About MoviePass's Subscription Model

12. Believing that HMNY's stock price was tied, in pa1t, to MoviePass's subscriber

count, Coconspirator I and LOWE launched the $9.95 "unlimited" plan as a marketing gimmick

to attract new subscribers and increase the price o f HMNY stock. In response to questions about

whether the $9.95 "unlimited" plan was "too good to be true," Coconspirator 1 and LOWE made

materially false and misleading representations that the plan had been tested and was a profitable

and sustainable business model, when in fact they knew it had not been tested and was neither

profitable nor sustainable.

13. For example, on or about August 16, 2017, Coconspirator 1 and LOWE appeared

for a joint interview on Fox Business, during which they were specifically asked whether

MoviePass would lose money on the $9.95 " unlimited" plan. LOWE promoted the materially

false narrative that the $9.95 "unlimited" plan would not lose money even though he knew it

would lose money:

4
Case 1:22-cr-20521-DSL Document 146 Entered on FLSD Docket 09/16/2024 Page 5 of 18

LOWE: We have figured out a way to give people a deal where they cannot believe
we can even afford to give.

Interviewer: Yea, because you lose money.

LOWE: Yea, no, we actually don't. Uh, and.

Interviewer: How do you not lose money?

LOWE: We have built a system that attracts people - a price point that attracts
people that only go three to six times a year.

14 . LOWE's representations were materially false and misleading because, in truth and

in fact, and as Coconspirator 1 and LOWE both knew, neither HMNY nor MoviePass had tested

the $9.95 " unlimited" plan, which had only been proposed for the first time internally only weeks

before. Coconspirator 1 and LOWE also knew LOWE's representations were materially false and

misleading because, in truth, Coconspirator l and LOWE knew the $9.95 "unlimited" plan would

lose money.

15. On or about August 16, 2017, LOWE appeared for a print interview for Variety.com,

which HMNY filed with the SEC on Form DEF 14A, and again promoted the materially false

narrative that the $9.95 "unlimited" plan was profitable and sustainable:

Interviewer: You are operating at a loss and subsidizing the tickets your customers
buy. AMC claims that at some point you will have to raise your prices or you'll go
out of business. Are they correct?

LOWE: The answer is no. They don 't understand our business model.

16. LOWE 's representation was materially false and misleading because, in truth and

in fact, and as Coconspirator I and LOWE both knew, the $9.95 "unlimited" plan was a temporary

measure that was unprofitable.

17. On or about September 22, 2017, Coconspirator I appeared for a print interview

with Pipeline Data, LLC ("Pipeline Data"), which HMNY filed with the SEC on Form DEF 14A.

5
Case 1:22-cr-20521-DSL Document 146 Entered on FLSD Docket 09/16/2024 Page 6 of 18

Coconspirator 1 repeated the materially false claims that the $9.95 "unlimited" plan had been

tested and proven profitable:

Interviewer: How is the $9.95 pricing going to work within your business model?

Coconspirator 1: MoviePass has been around for five years, so we have a wealth of
historical data. At $39, the average customer would go to four movies a month. At $29, the
average dropped to three movies a month. When MoviePass went to $19, the average
customer went to two movies a month. So we think we can be profitable on the
subscriptions at $9 .95 and then make the real money from the additional revenue sources.
The size of our customer base will give us a lot of leverage.

Interviewer: So, you think you can break even on the subscriptions alone?

Coconspirator I: I' m confident that we will. We already see it in our first 30 days at $9 .95.
Usage was even lower than we anticipated.

18. Coconspirator 1's representations were materially false and misleading because, in

truth and in fact, and as Coconspirator 1 and LOWE both knew, no testing had been done on the

$9.95 "unlimited" plan and it was a temporary gimmick that was unprofitable.

19. On or about January 9, 2018, Coconspirator I and LOWE appeared for a joint

interview on Yahoo! Finance. When asked during that interview whether $9.95 was "too low of

a price point," Coconspirator 1 falsely responded, "No," while LOWE misleadingly added that the

price point attracted moviegoers who only attended movies five times a year.

20. On or about January 26, 2018, LOWE appeared for a print interview with The

Hollywood Reporter, and again promoted the materially false narrative that the $9.95

"unlimited" plan was tested, sustainable, and profitable:

Interviewer: Is there a point when you'll just not be able to afford more subs [i.e.,
subscribers] because you're buying them too many tickets?

LOWE: No. I don ' t know why everybody believes that our customers are watching so
many movies. At some point we'll share more data with you and you'll be shocked .. ..

***

6
Case 1:22-cr-20521-DSL Document 146 Entered on FLSD Docket 09/16/2024 Page 7 of 18

Interviewer: Is there a point where you' II need to raise the price of a sub?

LOWE: We don't need to raise the price . I spent a year studying how I can get people who
spend $50 a year going to movies to spend $120 a year, and $9.95 is the price point that
gets them into the theaters more often.

21. LOWE's represen tations were materially false and misleading because, in truth and

in fact, and as Coconspirator 1 and LOWE both knew, no testing had been done on the $9.95

"unlimited" plan and it was a temporary measure that was unprofitable. By the time of this

interview, Coconspirator 1 and LOWE had already agreed privately to abandon the $9.95

" unlimited" plan.

22. On or about February 18, 2018, while appearing on an episode of the Recode Media

podcast, LOWE again falsely represented that MoviePass "tested like crazy until we were ready

to roll out the $9.95 plan." At the time LOWE made thi s representation, he !<new that MoviePass

had not tested the $9.95 " unlimited" plan .

23. On or about April 13, 2018, MoviePass announced it was retiring the $9.95

"unlimited" plan . Coconspirator 1 and LOWE, however, continued to make materially false and

misleading representations about MoviePass's subscription plan to artificially inflate the price of

HMNY's stock. For example, on or about April 27, 2018, LOWE texted Coconspirator I to

suggest MoviePass reintroduce the $9.95 " unlimited" plan to a1tificially inflate HMNY's stock

price and cause investors who speculated that the price of HMNY would decline (commonly

referred to as "short sellers" or "shorts") to " panic". On or about May 2, 2018, fewer than three

weeks after it was retired, the $9.95 "unlimited" plan was reintroduced for this fraudulent purpose.

Examples of Materially False and Misleading Representations
About HMNY's Data Analytics and Artificial Intellige11ce Technology and Capabilities

24. Coconspirator I and LOWE repeatedly made the materially false claim that the

strategic rationale behind HMNY 's acquisition of MoviePass was to enable HMNY to leverage its

7
Case 1:22-cr-20521-DSL Document 146 Entered on FLSD Docket 09/16/2024 Page 8 of 18

data analytics technology and artificial intelligence capabilities to increase shareholder value by

monetizing MoviePass's subscriber data.

25. For example, in HMNY's August 15, 2017, press release, which was disseminated

to investors through Business Wire and filed with the SEC on Form 8-K, Coconspirator l was

quoted as saying: "T believe the technology platforms that Helios and Matheson has built over the

years are a perfect fit for the MoviePass family[.] With our big data and a1tificial intelligence

platforms and other technologies that we own, we wi ll be ab le to bring a significant technological

advantage to MoviePass."

26. These representations in HMNY 's August 15, 2017, press release were materially

false and misleading because, in truth and in fact, and as Coconspirator 1 and LOWE both knew,

HMNY did not possess or otherwise "own" the types of technologies described in the press release,

including "big data" and "attificial intelligence" platforms or any other technologies capable of

monetizing MoviePass's subscriber data.

27 . Following the Acquisition, Coconspirator l and LOWE repeatedly made the

materially false claim that HMNY's technologies were being used to analyze MoviePass's

subscriber data and integrated into the MoviePass application . For examp le, on or about

September 14, 2017, HMNY issued a press release that was disseminated to investors and the

market online through Business Wire, The Miami Herald website, and a Form 8-K filed with the

SEC, among other means. The press release stated:

Using the Helios and Matheson Ana lytics resources, MoviePass Inc. analyzes consumer
trends, patterns and activ ities to engage subscribers with movie related merchandise,
adve1tising, and concessions relevant to their MoviePass experiences. Helios and Matheson
believes its technology stack combined with the MoviePass business model will transform
the movie going experience and create great value for both companies ... . Helios and
Matheson 's technology learns individual moviegoer 's tastes and makes recommendations
based on recorded preferences for specific genres, actors and even the opinions of friends
with similar likings . ...

8
Case 1:22-cr-20521-DSL Document 146 Entered on FLSD Docket 09/16/2024 Page 9 of 18

Also in the press release, Coconspirator 1 was quoted as saying: "This explains our sustainable

business model: Helios and Matheson is incorporating advertising models with the MoviePass

application using artificial intelligence, algorithms, and machine learning so we can provide

studios with more precise data for their advettising effo1ts."

28. These representations in HMNY's September 14, 2017, press release were

materially false and misleading because, in truth and in fact, and as Coconspirator l and LOWE

both knew, HMNY did not possess the types of technologies described in the press release, HMNY

had not used any of its technologies to analyze MoviePass's subscriber data, and HMNY had not

integrated any of its technologies into the MoviePass application.

29. On or about October 24, 2017, HMNY issued a press release that was disseminated

to investors and the market on line through Business Wire , The Miami Herald website, and an 8-K

filed with the SEC, among other means. The press release stated:

Following HMNY's purchase of a majority stake in MoviePass, which remains
subject to the approval of HMNY's stockholders, HMNY plans to futther integrate
its data analytics capabilities with the MoviePass service to analyze moviegoer's
behaviors and preferences, with the goal of helping the film industry better
understand what audiences want. With HMNY's capabilities, HMNY believes that
MoviePass can bridge an intelligence gap for the movie theater industry so the
entire film ecosystem can better serve audiences in areas ranging from production
to adve1tising.

In the press release, Coconspirator 1 was quoted as saying: "When you apply computer science

and machine learning to an industry that we believe has lacked significant innovation, useful

patterns start to emerge. . .. Together, I believe HMNY and MoviePass can offer important

analytics to movie studios and exhibitors while serving the interests of moviegoers in the process."

30. These representations from HMNY's October 24, 2017, press release were

materially false and misleading because, in truth and in fact, and as Coconspirator I and LOWE

9
Case 1:22-cr-20521-DSL Document 146 Entered on FLSD Docket 09/16/2024 Page 10 of 18

both knew, HMNY did not possess the types of technologies described in the press release, HMNY

had not used any of its technologies to analyze MoviePass's subscriber data, and HMNY had not

integrated any of its technologies into the MoviePass application.

31 . Coconspirator 1 and LOWE also repeatedly made the materially fal se

representation that HMNY 's technologies were being integrated into the MoviePass application to

create a revenue stream based on a "Night at the Movies" concept whereby MoviePass integrated

data about subscribers ' activities before and after they attended a movie into its business model.

For exampl e, on or about October 16, 2017, LOWE appeared for an interview on Fox Business

during which he explained the "Night of the Movies" initiative .

32. LOWE's representations were materially false because, in truth and in fact, and as

Coconspirator 1 and LOWE both knew, neither HMNY nor MoviePass tracked or collected data

on the location of MoviePass subscribers at any point when the MoviePass application was

not active for the purpose of searching for a nearby theater or checking into a theater. Moreover,

as Coconspirator 1 and LOWE also knew, HMNY had not used any of its technologies to analyze

MoviePass 's subscriber data, and HMNY had not integrated any of its technologies into the

MoviePass application.

33 . During their January 9, 2018 , joint interview on Yahoo! Finance , Coconspirator 1

and LOWE were specifically asked about the source of HMNY's and MoviePass's revenues.

Coconspirator l and LOWE promoted the materially false and misleading narrative that HMNY 's

monetization of MoviePass's subscriber data was driving the companies' revenues:

Interviewer: How are you possibly making money?

Coconspirator l: Sure. Well, I think, people ask us that all the time. And we've
known from day one, Helios is a ... analytics company. So when I first got together
with Mitch, and we looked at all the data, the analytics, what it was, that's really
what made us make the decision to invest in MoviePass.

10
Case 1:22-cr-20521-DSL Document 146 Entered on FLSD Docket 09/16/2024 Page 11 of 18

* * *

Interviewer: Let's work our way through a couple of the short arguments out there.
The idea of selling data is totally overvalued. There so much data out there, nobody
wants to buy it. You can't monetize the data patt."

Coconspirator l: " When we look at the data side, it's a different story . . . that's
where you're making your money, on, on the data, the advertising.

* * *

Interviewer: So, what does Helios & Matheson do? Because we rep01t on the stock
all the time, and we joke ' they should just change their name to MoviePass . .. '

Coconspirator I: ... Helios is really a data analytics company, which really made
the perfect marriage of MoviePass and the data analytics of how we're driving the
revenues of the company right now....

34. These representations were materially false and misleading because, in truth and in

fact, and as Coconspirator l and LOWE both knew, HMNY did not possess the types of

technologies that could be used to monetize MoviePass 's subscriber data, HMNY had not used

any of its technologies to analyze MoviePass's subscriber data, and HMNY had not integrated any

of its technologies into the MoviePass application.

35 . Coconspirator 1 and LOWE also knew these representations were materially false

and misleading because, in truth, data analytics were not driving the companies' revenues.

36. On or about March 2, 2018, LOWE spoke at the Ente1tainment Finance Forum,

giving a speech titled, "Data is the New Oil: How Will MoviePass Monetize lt?'' LOWE repeated

his materially false claim that MoviePass gathered data about its subscribers by tracking them

through their smait phones as pa1t of its "Night at the Movies" initiative. After the interview, when

it was pointed out that tracking subscribers violated MoviePass 's privacy policy, a media backlash

ensued.

37. On or about March 12, 2018, LOWE issued an email apology to MoviePass's

11
Case 1:22-cr-20521-DSL Document 146 Entered on FLSD Docket 09/16/2024 Page 12 of 18

subscribers, partners, and employees. LOWE admitted that MoviePass "does not track and has

never tracked or collected data on the location of our members at any point when the app is not

active," and "does not use and has never used [background tracking capabilities]. " LOWE claimed

that he was "joking around" when he stated otherwise. LOWE, however, had not been "joking

around." Rather, LOWE had intentionally misrepresented HMNY and MoviePass 's technological

capabilities in order to artificially inflate HMNY's stock price and attract new investors.

38. On or about March 13, 2018 , Coconspirator l privately texted LOWE, admitting :

"Our stock is tanking on that letter that went out. They ' re saying the exact thing I was afraid of

that we are not a big data company and we just admitted it in the letter. We got to get you on

CNBC sta1t changing the narrative." Coconspirator I also telephoned LOWE to admonish LOWE

for telling the truth about HMNY's lack of data analytics and artificial intelligence capabilities.

Coconspirator l reiterated to LOWE that a critical pa1t of the conspiracy was promoting the false

claim that HMNY had, and was using, data analytics and artificial intelligence technologies to

monetize MoviePass's subscriber data.

39. Throughout the remainder of 2018, through at least March 2019, Coconspirator l

and LOWE continued to promote the materially false narrative that HMNY possessed data

analytics and a1tificial intelligence that it was using to monetize MoviePass's subscriber data when,

in truth and in fact, and as Coconspirator l and LOWE knew, HMNY did not possess any such

technology and capabilities .

Examples of Materially False and Misleading Representations
About Non-Subscription Revenue

40. In addition to materially misrepresenting that data analytics was a revenue stream

for MoviePass, Coconspirator 1 and LOWE promoted a materially false and misleading narrative

about the existence of multiple other non-subscription streams of revenue to help persuade

12
Case 1:22-cr-20521-DSL Document 146 Entered on FLSD Docket 09/16/2024 Page 13 of 18

investors that MoviePass could build a sustainable and profitable business. For example, when

asked during the September 22 , 2017 , interview with Pipeline Data how MoviePass would be

profitable with the $9.95 "unlimited" plan, Coconspirator l responded:

We'll generate revenue from many sources. Tickets, concessions, advettisements ...
We already have deals in place. We can also sell soundtracks, posters, and other
movie-related products, right from their phones. As soon as they're walking out of
the theater, we' ll contact them . We tested it and 5-8% of people buy product from
us.

41. Coconspirator 1's representations m this interview were materially false and

misleading. In truth and in fact , and as Coconspirator 1 and LOWE both knew, at this point in

time, Coconspirator l and LOWE still did not have a plan for how to bridge the gap between the

cost of goods associated with the $9.95 " unlimited" plan and achieving profitability.

42. During the January 9, 2018, Yahoo! Finance joint interview, Coconspirator

falsely stated that, "within the next sixty days, [MoviePass] should be self-sufficient on its own."

When asked what revenue streams would make that possible, LOWE misleadingly claimed that

there were "Multiple revenue streams. We're signing deals with studios. We're getting discounts

from exhibitors."

43. Coconspirator I and LOWE knew that the claim that MoviePass should be self-

sufficient within 60 days was materially false and misleading because, in truth and in fact, around

the same time that Coconspirator 1 and LOWE were publicly claiming that MoviePass was 60

days from being self-sufficient, they were privately discussing in text messages the fact that, every

week, MoviePass required millions of dollars from 1-IMNY to survive. As Coconspirator 1 and

LOWE also knew, the few deals that MoviePass had signed could not close the company's multi-

million-dollar weekly cash shortfall. And Coconspirator 1 privately acknowledged to LOWE that

HMNY was not prepared to cover the growth in costs resulting from the millions of subscribers

13
Case 1:22-cr-20521-DSL Document 146 Entered on FLSD Docket 09/16/2024 Page 14 of 18

attracted by the $9.95 "unlimited" plan .

44. On or about March 23 , 2018, HMNY and MoviePass issued a joint press release

that was disseminated to investors through Business Wire and the South Florida Business Journal

website, among other means . The press release announced that, for a limited time, MoviePass

was offering its annual subscription to new subscribers for $6.95 per month. The press release

stated: "MoviePass has gained momentum in diversifying its revenue streams due to a series of

marketing agreements with studios and distributors, as well as partnerships with a number of

theater exhibitors. This recent success in forming relationships with studios, exhibitors, and

marketing pattners has encouraged MoviePass to offer an even more attractive deal to

consumers." Also in the press release, LOWE was quoted as saying: "With the current growth

and support that we've seen within the last several months, our studio and exhibitor revenues and

other marketing pattnerships have motivated us to lower the price once again, offering movie

lovers greater access to MoviePass."

45. These representations were materially false and misleading because, in truth and

in fact, and as Coconspirator I and LOWE both knew, Coconspirator 1 'sand LOWE's reason for

lowering the price was not MoviePass 's ability to generate non-subscription revenue but, rather,

its need to receive the full year's subscription payments up front in order to try to ease HMNY 's

and MoviePass's cash shottfalls.

Examples of Materially False and Misleading Representations
About the Nature and Cause of MoviePass Subscribers' Lower Usage Rates
and Associated Drop in Cost of Goods

46. Coconspirator I and LOWE repeatedly publicly assured investors that, based on

historical data, subscriber usage of the $9.95 "unlimited" plan would naturally decline over time

as subscribers settled into a predictable, low rate of usage. Their talking points were intended to

14
Case 1:22-cr-20521-DSL Document 146 Entered on FLSD Docket 09/16/2024 Page 15 of 18

reconcile for investors how MoviePass's subscriber growth rate could increase at breakneck speed

without the company running out of money. As Coconspirator 1 and LOWE knew, however, this

explanation lacked any basis in fact, and subscriber usage did not naturally decline as

Coconspirator 1 and LOWE had falsely claimed it would .

47 . Beginning in or around January 2018, Coconspirator I and LOWE agreed to

artificially reduce subscriber usage through behind-the-scenes tactics aimed at reducing the

amount of money that MoviePass spent buying movie tickets.

48. In or around April 20 I 8, as MoviePass's cash-flow situation worsened,

Coconspirator 1 and LOWE directed MoviePass employees to reset the passwords of the highest

volume users to disrupt or slow their usage of the MoviePass application to buy movie tickets. In

addition, Coconspirator I and LOWE also added a requirement that the top 7% of the highest

volume users be required to verify their purchases by requiring them to take a picture of the movie

ticket they purchased .

49. Coconspirator 1 and LOWE subsequently made materially false and misleading

representations reporting that the first quarter reduction in subscriber usage was the result of a

maturation of the subscriber base and natural decline over time as subscribers settled into a

predictable, low rate of usage. For example, on or about May 16, 2018, HMNY and MoviePass

issued a joint press release titled "(HMNY] and MoviePass Report First Qua1ter Earnings" that

was disseminated to investors through Bus;ness Wh·e, the South Flor;da Bus;ness Journal

website, and an 8-K filed with the SEC, among other means. The press release announced that

HMNY and MoviePass had their "biggest quarter" in their combined history and stated:

Our core strategy has always been to provide a compelling value proposition to
consumers that vastly improves their movie-going experience. As our subscriber
base rapidly grows and matures, our financial goal is to breakeven on subscribers
and generate alternative revenue streams . .. Recent trends related to average ticket

15
Case 1:22-cr-20521-DSL Document 146 Entered on FLSD Docket 09/16/2024 Page 16 of 18

purchases, churning net grov.rth and reducing abuse has bolstered our confidence in
our economic model being viable and shows significant improvement in achieving
our objectives. MoviePass is releasing key metrics that demonstrate significant
improvements to its economic model and strong appeal to customers. The trendline
based on our data suggests this figure will be reduced fu1ther in the coming months.
As our subscriber base matures, we are also naturally seeing significantly reduced
usage over time.

50 . These representations were materially fal se and misleading because, in truth and in

fact, and as Coconspirator 1 and LOWE both knew, the reduction in subscribers' usage and movie

consumption was attributable to a forced reduction in subscriber usage, not a maturation of the

subscriber base or natural cycle of use. These representations were also materially false and

misleading because they omitted mention of the fact that, as Coconspirator 1 and LOWE also

knew, MoviePass had selected paying subscribers for involuntary inclusion in programs to prevent

or slow use of the service to buy movie tickets based exclusively on the fact that, in the past, these

subscribers had used the service the most.

Materially False and Misleading Representations to the SEC

51. On or about July 25, 2022, LOWE provided sworn testimony to the SEC . Several

answers that LOWE provided in response to the SEC 's questions were materially false and

misleading and intended to conceal the existence of the conspiracy and LOWE's role in the

conspiracy. For example, in response to the SEC 's questions about how LOWE selected the

subscribers whose passwords were reset, LOWE falsely represented that he did not select the

subscribers based on the volume of movie tickets that they purchased but for other reasons:

SEC: [I]isn't it true though that you were selecting the subscribers whose passwords
would be reset based on the heaviest users of the MoviePass product?

LOWE: No, ... And of course, I had many people ask me, well, isn't that why you
targeted those people. And that's absolutely not how those people got into that
group. They got into the group because they were changing their phone more than
what seemed reasonable over a short period oftime .

16
Case 1:22-cr-20521-DSL Document 146 Entered on FLSD Docket 09/16/2024 Page 17 of 18

LOWE knew his representation was materially false because LOWE targeted subscribers for the

password reset based on their usage.

52. Similarly, in response to the SEC's questions about how LOWE targeted

subscribers for ticket verification, LOWE falsely represented that he did not select them based on

the amount of movie tickets that they purchased but for other reasons:

SEC : So for ticket verification, is it your testimony like the password reset, there's
a list out there with subscribers that you believe are vio lating MoviePass's terms
of service and that should be subject to the ticket verification tactic?

LOWE: Yes .... And again, this is an imperfect science, we would look at various
indicators that at least gave us the belief that it was possible that this individual
was violating the Ts and Cs, ...

Like LOWE's sworn testimony about the password reset, th is representation was materially false

because LOWE targeted subscribers for ticket verification based on the volume of movie tickets

that they purchased.

53. When asked by the SEC about representations made in a draft Form 10-Q, LOWE

falsely stated "I don't even know what a I 0Q is." In truth and in fact, LOWE not only had

knowledge of particular HMNY 10-Qs about which he corresponded by email, but he also had

knowledge of the terminology more generally.

***

54. LOWE agrees that he received at least $388,224.13 in salary payments during and

in furtherance of the conspiracy in 2017, 2018, and 2019, which constitute proceeds traceable to

the commission of the offense.

55. LOWE agrees that LOWE committed all the essential elements of the offense,

namely Conspiracy to Commit Securities Fraud in violation of Title 18, Section 371. This

statement is not intended to be a complete accounting of all the facts and events related to the

17
Case 1:22-cr-20521-DSL Document 146 Entered on FLSD Docket 09/16/2024 Page 18 of 18

offense charged in this case. The limited purpose of this statement is to demonstrate that a factual

basis exists to support LOWE's guilty plea to the Information.

GLENNS. LEON, CHIEF
U.S. DEPARTMENT OF JUSTICE
CRIMINAL DIVISION, FRAUD SECTION

MARKENZY LAPOINTE
UNITED STATES ATTORNEY
SOUTHERN DISTRICT OF FLORIDA

Date: 1/;;(21

Date: . Cfp~2-f

File and source

File: 146-factual-proffer-statement-as-to-j-mitchell-lowe.pdf
Size: 562,226 bytes
SHA-256: 001b746cab30f5745d45cc8c0a91c3f329171789450ab27dae19cbd2c1211a58
Our copy: 146-factual-proffer-statement-as-to-j-mitchell-lowe.pdf
Original: PACER (login required)