Indictment — United States v. Theodore Farnsworth and J. Mitchell Lowe, Southern District of Florida

Summary

A grand jury indictment against Theodore Farnsworth and J. Mitchell Lowe, Case No. 22-20521-CR-SCOLA/GOODMAN, in the U.S. District Court for the Southern District of Florida, entered on the docket 11/03/2022 as Document 3, citing 15 U.S.C. § 78j(b), 17 C.F.R. § 240.10b-5 and 18 U.S.C. § 1343. Count 1 charges securities fraud from at least August 2017 through March 2019, alleging that Farnsworth, Chief Executive Officer of Helios & Matheson Analytics Inc., and Lowe, Chief Executive Officer of MoviePass, made false statements about MoviePass's $9.95 "unlimited" plan, data technology and revenue to inflate HMNY's stock price. It alleges the plan was a marketing gimmick that lost money and that the defendants directed employees to "throttle" frequent users. It states Farnsworth negotiated bonuses of $1,000,000 and $1,500,000 tied to offerings totaling $190,000,000 in gross proceeds.

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‘Case 1:22-cr-20521-DSL Document.3 Entered on FLSD Docket 11/03/2022 Page 1 of 34

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA

22-20521-CR-SCOLA/GOODMAN

CASE NO.: —_
15 U.S.C. § 78j(b) -
15 U.S.C. : set FILED BY. KAN D.C.
17 C.E.R. § 240.10b-5
18 U.S.C. § 1343 Nov 2, 2022
18 U.S.C. § 981(a)Q)(C) . ANGELA E. NOBLE
CLERK U.S. DIST. CT.
. §. 0 OF FLA. - Miami
UNITED STATES OF AMERICA

Vv.

THEODORE FARNSWORTH and

_. J. MITCHELL LOWE,
Defendants.
INDICTMENT
The Grand Jury charges:

GENERAL ALLEGATIONS

At various times material to this Indictment:
1. Helios & Matheson Analytics Inc. (““HMNY”) was a publicly traded company with

offices. in Miami, F lorida, and New York, New York. HMNY’s common stock traded on the
‘NASDAQ exchange until in or around February 2019, after which it was delisted from the

‘. exchange and began trading “over the counter.” HMNY described its product offerings as “a range
‘ of technology platforms focusing on big data, artificial intelligence, business intelligence, social

listening, and consumer-centric technology.”

- 2.. _. MoviePass Inc. (“MoviePass”) was a privately held company with offices in New »
Case 1:22-cr-20521-DSL Document 3 Entered on FLSD Docket 11/03/2022 Page 5 of 34

5. All of these. representations, which were made to artificially inflate HMNY’s stock
price and attract new investors, were materially false and misleading. In truth and in fact, and as
THEODORE FARNSWORTH and J. MITCHELL 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 capabilities into the MoviePass application; -

c. MoviePass’ didnot 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 FARNSWORTH |
* and LOWE personally directed MoviePass employees to “throttle” subscribers
who most frequently used the service to buy movie tickets. and. then
| FARNSWORTH and LOWE concealed the true nature of. their tactics” from
investors and subscribers.

6. In furtherance of the scheme, the defendants, THEODORE. FARNSWORTH and

J; MITCHELL LOWE, made these materially false and misleading representations in press
releases, SEC filings, interviews on podcasts and on television, and in print and online 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.
Case 1:22-cr-20521-DSL Document 3 Entered on FLSD Docket 11/03/2022 Page 6 of 34
|

| FARN SWORTH and LOWE arranged the media appearances and authored, reviewed, approved,
issued, and disseminated the press releases and SEC filings.
7. To conceal the scheme from regulators, J. MITCHELL LOWE also made
materially false and misleading statements in sworn testimony to the SEC.
HMNY’s Acquisition of MoviePass
8. . By 2017, MoviePass was running out of money. MoviePass had been operating at.
a loss for years and was unable to obtain additional financing. J. MITCHELL LOWE was on
the verge of shutting down MoviePass’s business operations when he met THEODORE
. 9. On or about August 15, 2017, at the direction of THEODORE FARNSWORTH |
- and J. MITCHELL LOWE, HMNY issued a press release announcing that HMNY had agreed .
to acquire a majority ownership interest in MoviePass (the “Acquisition”). . HMNY also announced
that MoviePass had launched a new nationwide subscription program that enabled new subscribers
to see “unlimited” movies in theaters with no blackout dates-for a flat monthly fee of $9.95. The
strategic rationale for the Acquisition, according to the press release, was to “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
asa result of the $9.95 “unlimited” plan. .
| 10.._ Asa term of the Acquisition, MoviePass had agreed, following ihe closing of the
| Acquisition, t6 apply for listing and seek to begin trading on the NASDAQ or the New York Stock -
- Exchange:by March 3 1, 2018, and HMNY would remain the maj otity shareholder of MoviePass.
| 11. Beginning with the. announcement of the Acquisition, THEODORE

FARN SWORTH and J. MITCHELL LOWE launched a campaign to artificially inflate the price
Case 1:22-cr-20521-DSL Document 3 Entered on FLSD Docket 11/03/2022 Page 7 of 34

of HMNY common stock by publicly promoting materially false and misleading information, as
described below. FARNSWORTH and LOWE appeared for numerous interviews on television,
‘and in print and online media, available throughout the United States and elsewhere, including
within the Southern District of Florida. For example, FARNSWORTH was interviewed by the
Miami Herald for an article titled “Hollywood Is Being Run Out of Miami.” . FARNSWORTH.
and LOWE also issued, or caused to be issued, numerous press releases on behalf of HMNY and
MoviePass, many of which were disseminated through Business Wire via the Internet to media
outlets throughout the United States and elsewhere, including within the Southern District of
Florida. Many of these interviews: and press releases were filed with the U.S. Securities and
Exchange. Commission (“SEC”) on Form DEF 14A and Form 8-K, respectively, and available
online via the SEC’s EDGAR website. a
12. Following the Acquisition, HMNY raised hundreds of millions of dollars from debt _
and equity offerings. This included money raised from three sets of convertible notes in November
201 7, January 2018, and June 2018, as well as from three sets of equity offerings in February 201 8,
April 2018, and October 2018. | |
13. THEODORE FARNSWORTH?’s compensation was based, in part, on the sale of
~ HMNY securities. In or around mid-December 2017, FARNSWORTH negotiated a $1,000,000
bonus for his role in raising capital up to.that point. And in or around March 2018,
FARNSWORTH negotiated a $1,500,000 bonus for his role in completed offerings of HMNY .
securities totalinis $190,000,000 in gross proceeds since mid-December 2017.
14. THEODORE FARNSWORTH?’s and J. MITCHELL LOWE’s employment
agreements also provided for the payment of multi-million-dollar bonuses based: on milestones

tied to the stock price of HMNY. -
Case 1:22-cr-20521-DSL Document 3 Entered on FLSD Docket 11/03/2022 Page 9 of 34
|

though he had privately acknowledged weeks earlier that it was a “crazy idea” that would lose.
money:

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.

18. J. MITCHELL LOWE’s representations were materially false and misleading

_because, in truth and in fact, and as the defendants both knew, neither HMNY nor MoviePass had
_tested the $9.95 “unlimited” plan, which had énly been proposed for the first time internally only
weeks before. The defendants also knew LOWE’s representations were materially false and
misleading because, in reality, the defendants knew the $9.95 “unlimited” plan would lose money-
19. Onor about August 16, 2017, J. MITCHELL 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
Interviewer: You are_operating at a loss and subsidizing the tickets your. customers buy.
AMC claims that. at some point you will have to Taise your prices or you'll go out of
business. _Are they correct?
LOWE: The‘answer is no. They don’t understand our business model.
20. Jz MITCHELL LOWE?’s representation was materially false and misleading
because, in truth and in fact, and as the defendants both knew, the $9.95 “unlimited” plan was a

temporary measure that was unprofitable.
Case 1:22-cr-20521-DSL Document 3 Entered on FLSD Docket 11/03/2022 Page 10 of 34

21. On or about September 22, 2017, THEODORE FARNSWORTH appeared for a
print interview with Pipeline Data, LLC (“Pipeline Data”), which HMNY filed with the SEC on
Form DEF 14A. FARNSWORTH 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?

FARNSWORTH: 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 4 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? _

FARNSWORTH: I’m confident that we will. We already: see it in our first 30 days at
$9. 99. Usage was even lower than we anticipated.

* 22. THEODORE FARNSWORTH’s representations were materially false and
misleading because, in truth and in fact, and as the defendants both knew, no testing had been done .
on the $9.95 “unlimited” plan and it was a temporary gimmick that was unprofitable.

23. Within weeks of THEODORE FARNSWORTH’s Pipeline Data interview, J.
. MITCHELL LOWE privately inquired about changing the $9.95 “unlimited” plan that he
publicly claimed was sustainable. On or about October 6, 2017, LOWE emailed a team of |
MoviePass executives to request “everyones [sic] feedback on removing theaters who charge
above $12 or $13. Thoughts?” In response, one MoviePass executive wrote: |
Tricky situation. This creates a few different issues in a few different areas.
First, it removes a majority of theaters in large markets: NYC, LA, DC, SF, Seattle,

Philadelphia. Across only the top 15 major networks it impacts, it affects 50% of our user
base.

10
Case 1:22-cr-20521-DSL Document 3 Entered on FLSD Docket 11/03/2022 Page 11 of 34

Then we get into the press/publicity aspect of it. Basically, that would give AMC validation
that they were right all along; that this is not a sustainable product and it completely kills
any credibility we have left.

. 24. THEODORE FARNSWORTH and J. MITCHELL. LOWE continued to make
similar materially false and misleading representations about the profitability and sustainability of
the $9.95 “unlimited” plan.. For example, on or about January 9, 2018, FARNSWORTH 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,” FARNSWORTH falsely responded, “No,” while
LOWE misleadingly added that the. price point attracted moviegoers who. only attended movies

five times a year. | |

25. In that same interview, J. MITCHELL LOWE also made the materially false and
misleading representation. that it was “not true at all” that MoviePass needed movie theaters to
agree to provide MoviePass with lower ticket prices to turn a profit (i.e., to reduce the difference ~
between the price. MoviePass paid for a move ticket and the amount MoviePass received from

monthly subscribers). LOWE Ikmew his representation was materially false and misleading when

_ he made it because, as described in paragraph 23, LOWE had earlier explored the possibility of.
removing from the subscription service theaters that charged more than $12 or $13 for a movie
ticket.

26. On or about January 16, 2018,—one. week following the Tanuary 9, 2018, joint
interview with Yahoo! F inance— J. MITCHELL LOWE. texted THEODORE |
FARNSWORTH and HMNY Executive 1 concerning the losses caused by subscribers’ use of the
service for which they were paying and to suggest MoviePass terminate the $9.95 “unlimited”

plan.
Case 1:22-cr-20521-DSL Document 3 "Entered on FLSD Docket 11/03/2022 Page 12 of 34

27. The next day, on or about January 1 7, 2018, J. MITCHELL LOWE again texted
THEODORE FARNSWORTH about the need to change the $9.95 “unlimited” plan. In bis
“private communication to FARNSWORTH, LOWE acknowledged that the $9.95 “unlimited”
plan always had been a temporary measure and that it was not sustainable. |
28. Approximately one week later, on or about January 26, 2018, J. MITCHELL
/ LOWE appeared for a print interview with the The. Hollywood Reporter, and again promoted
the materially: false narrative that the $9.95 “unlimited” plan was tested, sustainable, and

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. ...

Interviewer: Is there a point where you’ll 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.

.29. J. MITCHELL LOWE’s representations were materially false and misleading
because, in truth and in fact, and as the defendants both knew, no testing had been done on the
$9.95 “unlimited” plan and it was a temporary measure that was unprofitable. Indeed, by the time

~ of this interview, THEODORE FARN SWORTH and LOWE had already agreed privately to
abandon the $9.95 “unlimited” plan. |

30. | Onor about February 18, 2018, while appearing on an episode of the Recode Media

podcast, J. MITCHELL LOWE again falsely represented that MoviePass “tested like crazy until
Case 1:22-cr-20521-DSL Document 3 Entered on FLSD Docket 11/03/2022 Page 13 of 34

we were ready to roll out the $9.95 plan.” At the time LOWE made this representation, he knew

that MoviePass had not tested the $9.95 “unlimited” plan.

31. | On or about April 13, 2018, MoviePass announced it was retiring the $9.95
“unlimited” plan. THEODORE FARN SWORTH and J. MITCHELL 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 FARN SWORTH to suggest MoviePass reintroduce the $9.95 “unlimited” plan to

artificially 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”:

LOWE: We could blow people away if on Wednesday we do Unlimited for $9.95

FARNSWORTH: I know

LOWE: We should

FARNSWORTH: Change the whole story[.] I agree[.] And just keep throttle ing[.] And
not tell anyone

LOWE: The shorts will panic

FARNSWORTH: Omg © listen to you!!!! Your [sic] starting to scare me lol

LOWE: Learning

FARNSWORTH: Lol
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.

32. Toward the end of. June 2018, HMNY received notice from NASDAQ that its stock .
would be delisted. Toward the end of July 2018, MoviePass ran out of money and briefly

suspended its service. On or about July 31, 2018, at. the direction of THEODORE

13
Case 1:22-cr-20521-DSL Document 3 Entered on FLSD Docket 11/03/2022 Page 14 of 34

i

FARN SWORTH and J. MOTCHELL LOWE, MoviePass issued a press release that was
; disseminated to investors and the market online through Business Wire, the South Florida Business
Journal website, and an 8-K filed with the SEC, among other means. The press release outlined
for investors new. steps ‘that MoviePass claimed would “compress its timeline to reach
profitability.” The press release falsely represented that MoviePass was raising the price of its

, subscription from $9.95 to $14.95 to increase profitability. .

. 33, . “The defendants knew this representation was materially false when made because
they did. not actually intend to raise the subscription price to $14.95 and had only announced the
price. increase to temporarily reassute investors who -were concerned about the companies’ |

. finaricial condition-and to artificially inflate HMNY’s stock price. Moreover, in truth and ‘in fact,
_MoviePass announced on August 6, 20 1 8, that it would not be increasing the subscription price to.

Defendants Made Materially Fi alse and Misleading Representations About HMNY’s Data
Analytics Technology and Capabilities

34, THEODORE FARN SWORTH and J. MITCHELL LOWE, repeatedly made the
materially false claim that the strategic rationale behind HMNY’s acquisition of MoviePass was
% enable HMNY to leverage-its data analytics technology and capabilities to increase shareholder

- value by monetizing MoviePass’s subscriber data. |
35. | For example, in HMNY’s August 15, 2017, press release, which was disseminated

a to investors through Business. Wire and filed. with the SEC: on Form 8K, THEODORE

FARNSWORTH was quoted as * saying: ot believe the- technology platforms that Helio and
. Matheson. has built over the years are a perfect fit for the MoviePass family[. ] With our r big data

and artificial intelligence platforms and other technologies that we own, we will be able to bring a

significant technological advantage to MoviePass.”
_ Case 1:22-cr-20521-DSL_ Document 3. Entered on FLSD Docket.11/03/2022 Page 15 of 34

false and.misleading because, in.truth and in fact, and as the defendants both knew, HMNY did

“Bot Possess or otherwise “own” the types of technologies described in the press release, including
“big- data” and “artificial intelligence” platforms or any other technologies capable of monetizing
MoviePass’s subscriber data.

37... -Following the Acquisition, THEODORE FARNSWORTH and J. MITCHELL

- 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.example,
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 an 8-K filed with
the SEC , among other means. The press release stated:

- Using ihe Helios and: Matheson Analytics resources, MoviePass Inc. analyzes consumer |
_ trends, ‘patterns and activities to engage subscribers: with movie related’ merchandise,,

- advertising; and-concessions relevant to their MoviePass experiences. Helios and Matheson .
believes.its technology stack combined with the MoviePass busiriess 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. .

- Also in the press release, FARNSWORTH: 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 advertising efforts.”

38. These representations. in HMNY’s.. September 14, . 2017, press: release were —
materially false and misleading because, in truth and in fact, and as the defendants both knew,

HMNY did not possess t the types of technologies described i in the ‘Press release, HMNY had not
Case 1:22-cr-20521-DSL Document 3 Entered on FLSD Docket 11/03/2022 Page 16 of 34

used any of its technologies to analyze MoviePass’s subscriber data, and HMNY had not integrated
any of its technologies into the MoviePass application.
39. — Onor about October 24, 2017, HMNY issued a press release that was disseminated
_ to investors and the market online 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 further 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 advertising. ;
In the press release, THEODORE FARNSWORTH 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.”

40. These representations from HMNY’s October 24, 2017, press. release were

materially false and misleading because, in truth and in fact, and as the defendants both knew,

HMNY did not possess the types of technologies described in the presi 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.

41. THEODORE FARNSWORTH and J. MITCHELL LOWE also repeatedly

. made the materially false 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

16
Case 1:22-cr-20521-DSL Document 3. Entered on FLSD Docket 11/03/2022 Page 17 of 34

movie into its business model. For example, on or about October 16,.2017, LOWE appeared for
an interview on Fox Business during which he explained the “Night of the Movies” initiative:
Interviewer: And you said that your company MoviePass is planning to make a profit by
selling user-data to Uber, Hollywood Studios, restaurants close to the theaters. Basically,
bottom line is, you say you’re not selling data but you're using the data to inform.
LOWE: Right. You know, people want to go.to the movies more often but they don’t want
to take the risk of a bad movie. So, what we do at MoviePass is we help them make.a better
_ decision as far as enjoying the movie. But going to the movies there’s much more to it than
_ just going straight to the movie theater. You go to dinner. You might have drinks. You might
~ use Uber or Lyft. So, -we’re going to help our subscriber to get to all those businesses and.

get discount and benefits and —

Interviewer: So, will Uber pay for that information? Do: the Hollywood restaurants - I
smean, are they paying for-that data?

LOWE: They will.-As we drive more and more of our subscribers to their businesses we'll
take a share of the incremental profit.

Interviewer: And how do you yu know where people are going after they go to the movies?
LOWE: Well, you know, today with your phone in.your pocket, people can track pretty
much where you are. You log on to Facebook, they know where you are. When you log in
_ to.our app, we know where you are. Because we automate your movie subscription by
. essentially what theater you're close to.
42. | J. MITCHELL LOWE?’s representations: were materially. false-because, in truth
_ and in’ fact, and as the defendants 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 the defendants also-knew, HMNY had not used any of its technologies. to analyze
MoviePass’s ‘subseriber data, and HMNY had not integrated any of its technologies into the
43. During their January 9, 2018, joint interview on Yahoo!. Fi inance, THEODORE

FARNSWORTH and J. MITCHELL LOWE: were specifically asked about the source of
Case 1:22*cr-20521-DSL Document 3 Entered on FLSD Docket 11/03/2022 Page 18 of 34

HMNY’s and MoviePass’s revenues. FARNSWORTH and LOWE promoted the: materially false
and misleading narrative that HMNY’s monetization of MoviePass's subscriber data ‘was driving .
the companies’ revenues: a
Interviewer How are you possibly making money? -
FARNSWORTH: 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.

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 part.” ;

- FARNSWORTH: “When we look at-the data side, it’s a different story .. _ that’s where |
you re. 2 making your money, on; on the data, the advertising..

Interviewer: So, what: does Helios & Matheson do? Because we report on the stock all the
time; and we joke * ‘they. should “just change their name to MoviePass. -

FARNSWORTH: _ 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.
44. 7 “ These representations were materially false and misleading because, in truth and in .
fact, and as the defendants 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”
: AS. The defendants also’ knew these. representations were materially false and. -

misleading:because, in réality, data analytics were not driving the companies’ revenues. For the
Case 1:22-cr-20521-DSL Document 3 | Entered on FLSD Docket 11/03/2022 Page 19 of 34

- fiscal year that ended nine days prior to that interview, MoviePass reported only revenue from
subscriptions. In the first quarter of 20 18, MoviePass reported revenues composed
overwhelmingly of subscription revenue. Indeed, after. one. MoviePass. executive notified.

- THEODORE FARN SWORTH and J. MITCHELL LOWE about closing a deal, he joked that
it was in.an amount that “Doesn’t pay anyone’s salary yet.”

- 46. . On or about March 2; 2018, J. MITCHELL LOWE spoke at the Entertainment

. Finance Forum, giving a speech titled, “Data i is the New Oil: How Will MoviePass Monetize It?”

“LOWE repeated his materially false claim that MoviePass gathered data about its sibseribers 's by
tracking them through their smart phones as part of its “Night at the Movies” initiative. LOWE .
falsely stated:
We get an enormous amount of information. :.. because you- are being tracked in your GPS
by the phone, our patent. basically turns on and off our payment system: by hooking that
card.to the device ID on your phone, so we watch how you drive from home‘to the movies. _
- We watch’ where you go afterwards, and sO. we know the movies you’ watch. We know: all
about you.

” After the intervidw,-whed it-was pointed out that tracking subscribers violated MoviePass’s privacy .
policy, amedia backlash ensued.

47, On or about March 7, 2018, one of THEODORE FARNSWORTH ?’s assistants
texted FARNSWORTH a statement to make to a a reporter, which FARNSWORTH approved.
The statement, which further supported FARNSWORTH’s and J. MITCHELL LOWE?’s

mateially false narrative about HMNY’s use of data analytics to monetize MoviePass: Ss subscriber

data, read as follows:

Itisa mystery to me e why: so many people are surprised that HMNY (a big data analytics

company) and MoviePass are using data to innovate the movie industry. ... For.months

we’ve been hearing “how does MoviePass plan-to make a profit,” ’ this is how. The ‘analysis

and understanding of consumer behavior is precisely how we are able to deliver a movie a

day for $9.95 a ‘month to 2.million subscribers. . . What -we will do is turn your data into
valuable marketplace information so that we and: everyone ‘we work with can create > the best
Case 1:22-cr-20521-DSL Document'3 : Entered on FLSD Docket 11/03/2022 Page 20 of 34

possible experience for audiences, the studios, andthe exhibitors: That said, Our [sic]

members will always have the. option to choose the location-based services that are right

for.them. today and in the future.
~ 48. -On or about March 10, 2018, THEODORE FARNSWORTH privately admitted
. tohis assistant that the representations he and.J. MITCHELL LOWE had been making about the
“Night at the Movies” initiative were false. FARNSWORTH texted his assistant to complain:
“This is a major. mess [about privacy.” His assistant responded: § “It’s annoying because we
literally can ‘t do any of it”. FARNSWORT H replied: “We.are finding out that ‘we actually can
do it. But ‘we don’ t”. |

49, On or about March 12; 2018, J. MITCHELL LOWE issued an. email apology t to

MoviePass’s 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. -
~ 50. On: or about March 13, 2018, THEODORE FARNSWORTH privately texted J.

MITCHELL LOWE, admitting: “Our stock is tanking on that letter that went out. They’re

: saying the exact ‘thing I was atraid of that we ate not a big data company and we just admitted it ©

. “in the letter. We got to get-you on CNBC start changing the narrative.”

‘51: Throughout. the remainder of 2018, through at least March. 2019, the defendants
continued: to promote the -materially false narrative that -HMNY. possessed data analytics
technology and capabilites that it was using to monetize MoviePass’s subscriber data when, in

‘truth and i in fact, and as the defendants knew, HMNY did not possess any such technology and

7 capabilities.
Case 1:22-cr-20521-DSL Document 3 Entered on FLSD Docket 11/03/2022. Page 22 of 34

MITCHELL LOWE misleadingly claimed that there were “Multiple revenue streams. We’re
signing deals with studios. We’re getting discounts from exhibitors.”

55. The defendants 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 THEODORE FARNSWORTH and J. MITCHELL 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 HMNY to survive. As the
defendants also knew, the few deals that MoviePass had signed could not close the company’s

~ multi-million-dollar weekly cash shortfall. And, as discussed in the text message described ‘in ©
paragraph 26 above, FARNSWORTH privately acknowledged to LOWE that HMNY was not
prepared to cover the growth in costs resulting from the millions of subscribers attracted by the © |
$9.95 “unlimited” plan,

56.- On or about March 23, 2018, HMNY and MoviePass issued a joint press release .
that was disséziinated 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 partners has encouraged MoviePass. to offer an even more attractive deal to
consumers.” Also in the press release, J. MITCHELL 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 partnerships have motivated us to lower the price once again,

22
Case 1:22-cr-20521-DSL Document 3 Entered on FLSD Docket 11/03/2022 Page 23 of 34

offering movie lovers greater access to MoviePass.”

57. These representations were materially false and misleading because, in truth and
in fact, and as the-defendants both knew, THEODORE FARNSWORTH?’s and J. MITCHELL
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 shortfalls. Indeed, as early as January 2018,

~ FARNSWORTH and LOWE were texting about their desperate need to access “massive cash”
and how an “Annual plan can provide cash flow.”

Defendants Made-Materially False and Misleading Representations About the Nature and
Cause of. MoviePass Subscribers ’ Lower Usage Rates and Associated Drop in Cost of Goods

58. THEODORE FARNSWORTH and J. MITCHELL 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 reconcile for investors how MoviePass’s subscriber growth rate
could i increase at breakneek speed without the company running out of money. As.the defendants.
knew, however, this explanation lacked any basis in fact, and subscriber usage did not naturally
decline as FARNSWORTH and LOWE had falsely claimed it would.
| 59. Beginning in or around January 2018, THEODORE FARNSWORTH and J.
MITCHELL 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. For
exarinple, on January 24,.2018, LOWE texted FARNSWORTH to discuss which tactics they

should use against subscribers: ;

LOWE: I need your direction in order to give me time to impact cash flow needs. If we
cant [sic] get sufficient funding ican slow down 1 new sub acquisition by reducing card
shipments.
Case 1:22-cr-20521-DSL Document 3. Entered-on FLSD Docket 11/03/2022 Page 25 of 34

thousands of dollars” worth of tickets. FARNSWORTH responded with approval and then sent
LOWE a photo of the private jet that he rented using investor money to fly himself and some

MoviePass executives to the Coachella Music Festival:

LOWE: We think the tactics we launched yesterday saved $400k
FARNSWORTHE: Oh wow »
LOWE: I was hoping for more. Today will have less impact because within minutes

Reddit. posted solution to resetting password[.] We did though greatly expand the ticket
verification which reduces almost by 1 movie weekly for those. in the program

kK

FARNSWORTH: You would have had a blast on the jet

LOWE: Looks like fun.

LOWE: | hope you know how much i admire you. Every day iam more proud to be your ~
partner on this mission. . |

-62. THEODORE FARNSWORTH and J. MITCHELL 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 subsctibers 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 “[THMNY] and MoviePass
Report First Quarter Earnings” that was disseminated to investors through Business Wire, the
South Florida Business 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

25
}

‘Case 1:22-cr-20521-DSL Document 3 Entered ori FLSD Docket 11/03/2022 Page 26 of 34

and matures, -our financial goal is to breakeven on subscribers and generate alternative -
- revenue streams :.. Recent trends related to average ticket purchases, churning net growth
and reducing abuse has bolstered our confidence i 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 further ~
in the coming months. As our subscriber. ‘base matures, we are “also naturally seeing
_ Significantly reduced usage over time.- ,
- 63. ; - These represéntations were materially ‘false and misleading because, in truth and in
fact, and’as the defendants both knew, the reduction‘in subscribers’ usage and movie-consumption
_ was attributable to a forced reduction in subscriber usage, nota 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 the defendants 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.

Defendant LOWE Made Materially False and / Misleading Representations to the U.S.
Securities and Exchange Commission

64. -Onor about July 25, 2022, J. MITCHELL 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 nature of the defendants’ fraudulent
scheme and LOWE’s role in the scheme. 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 subsctibers based on the value of movie tickets that they purchased but for
ve other reasons: | | |

SEC: [I]isn’t it true though that you were selecting the subscribers whose passwords -would
be reset based on 1 the heaviest users of thes MoviePass product? ;

26
Case 1:22-cr-20521-DSL Document 3 Entered on FLSD Docket 11/03/2022 Page 27 of 34

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 of time.

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

password reset based on their usage.

65. ~ Similarly, in response to. the SEC’s questions about how J. MITCHELL 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 violating MoviePass’s terms of service and
that shouldbe 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, this representation was materially false
because LOWE targeted subscribers for ticket verification based on the volume of movie tickets .

that they purchased.

66. J. MITCHELL LOWE also testified under oath that, prior to July 2018,

‘ MoviePass did not turn off movie titles from the MoviePass application to conserve the amount of

cash that ithad to spend on movie tickets. This, too, was materially false. In truth and in fact, and
as LOWE knew, he began directing MoviePass employees to turn off titles from the MoviePass
application as early as January 2018. |

67. _ When asked by the- SEC about representations made in a draft Form 10-Q, J.

MITCHELL. LOWE. falsely stated “I don’ t even know what a 10Q 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. For example, in a text to

(27
Case 1:22-cr-20521-DSL Document 3 Entered on FLSD Docket 11/03/2022 Page 28 of 34

THEODORE FARNSWORTH on or about May 13, 2018, LOWE specifically referenced “the
: Q.”
In violation of Title 15, United States Code, Sections 78] and 78ff; Title 17, Code of Federal

| Regulations, Section 240.10b-5; and Title 18, United States Code, Section 2.

COUNTS 2-4
Wire Fraud
(18 U.S.C. § 1343)
1. The General Allegations section of this Indictment is hereby re-alleged and fully
incorporated herein by reference.
2. From at least in or around August 2017, and continuing through at least in or around

March 2019, within the Southern District of Florida and elsewhere, the defendants,

THEODORE FARNSWORTH and
J. MITCHELL LOWE,

did knowingly, and with the intent to defraud, devise, and intend to devise a scheme and artifice
to defraud, and to obtain money and property by. means of materially false and fraudulent
~ pretenses, representations, and promises, knowing that the pretenses, representations, and

. promises were false and fraudulent when made, and, for the purpose of executing such scheme and
artifice, did knowingly transmit and cause to be transmitted, by means of wire communications in
interstate and foreign commerce, certain writings, signals, pictures, and sounds.

PURPOSE OF THE SCHEME AND ARTIFICE

3. It was the purpose of the scheme and artifice for the defendants, THEODORE

. FARNSWORTH and J. MITCHELL LOWE, to unjustly enrich themselves by: (i) making
materially false and misleading representations to investors relating to the businesses and
operations of HMNY and MoviePass, including HMNY’s and MoviePass’s product offerings,

technology, and capabilities, in. order to artificially increase the price of HMNY common stock

28
Case 1:22-cr-20521-DSL Document 3 Entered on FLSD Docket 11/03/2022 Page 29 of 34

and attract new investors; (ii) concealing from investors the true facts; (iii) diverting the proceeds
of the scheme and artifice for their personal use and benefit through bonuses and misuse of
corporate. funds for personal. expenses; and (iv) concealing the scheme from regulators, law

enforcement, investors, and the media.

_ MANNER AND MEANS OF THE SCHEME AND ARTIFICE
4. The Manner and: Means section of Count 1 of this Indictment is hereby re-alleged
and fully incorporated herein by reference.

5. On or about the dates specified as to each count below, in the Southern District of
‘Florida, and elsewhere, the defendants, for the purpose of executing and in furtherance of the
aforesaid scheme and artifice to defraud, and to obtain money and property by means of materially
false and fraudulent pretenses, representations, and promises, knowing that the pretenses,
representations, and promises were false and fraudulent when made, did knowingly transmit and
cause to be transmitted, by means of wire communication in interstate and foreign commerce,

certain writings, signals, pictures, and sounds, as particularly described below:

Count — . Approximate Date Description of Interstate Wire

Press release ~ jointly: issued by HMNY and
; MoviePass that was disseminated via interstate
2 3 March 23, 2018 wire to investors and the.market online; including
. via the South Florida Business Journal within the
Southern District of Florida. ;
Press release jointly issued by HMNY and

MoviePass that was disseminated via interstate
3 _ . May 16, 2018 wire to investors and the market online, including
Se a ‘via the South Florida ‘Business Journal within the
| Southern District of Florida. . .
- Case 1:22-cr-20521-DSL Document 3 Entered on FLSD Docket 11/03/2022 Page 33 of 34

UNITED-STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA

PENALTY SHEET
Defendant's Name: J. MITCHELL LOWE
Case No:
Count #: 1

Title 15, United States Code, Sections 78j(b); 78 ff: and C. F. R. § 240. 10b- 5

* Max. Term of Imprisonment: 20 years
* Mandatory Min. Term of Imprisonment df applicable): N/A
* Max. Supervised Release: 3 years
* ~ Max. Fine: $5 Million or twice the gross gain or gross loss from the offense |

Counts #: 2-4

Title 18, United States Code, Section 1343

Wire Fraud
-.* Max. Term of Imprisonnient: 20 years as to each count
* Mandatory Min. Term of Imprisonment (if applicable): N/A
* Max. Supervised Release: 3 years
> * Max. Fine: $250,000 or twice the gross gain or loss from the offense

*Refers only to possible term of incarceration, supervised release and fines, It does not include
restitution, special assessments, parole terms, or forfeitures that may be applicable.
Case 1:22-cr-20521-DSL Document 3 Entered on FLSD Docket 11/03/2022 Page 34 of 34

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT: OF FLORIDA |

UNITED STATES OF AMERICA CASE NO.:
THEODORE FARNSWORTH and _ CERTIFICATE OF TRIAL ATTORNEY*
’ J. MITCHELL LOWE, - ;
/ Superseding Case Information:
Court Division (select one) ae New Defendant(s) (Yes or No)
; fd Miami Cl Key West PrP Number of New Defendants
OF FTL | - WPB. Total number of New Counts
I “ > hereby certify that:

_T have carefully considered the allegations of the indictment, the number of defendants, the number of probable
witnesses and the legal complexities of the Indictment/Information attached hereto.

_ Tam aware ‘that the information supplied on this statement will be relied upon by the Judges of this Court in setting

their calendars and scheduling criminal trials under the mandate of the Speedy Trial Act, Title 28 U.S.C. §3161.

- Interpreter: (Yes or No) No

List language and/or dialect:

This case will take 20 days for the parties to try.

Please check appropriate category and type of offense listed below:

(nec only one) ; (Check only one)

, = Oto 5 days Petty
| 6 to 10 days 4 Minor
ir a 11to 20 days [] Misdemeanor

Vv Oe days and over
_ Has this ¢ case been previously filed in this District Court? (Yes or No).No N

10.
ll.
12.
13.

14.

Has a complaint been filed:in this matter? (Yes or No) No

- If yes, Magistrate Case No.

Does this case relate to a previously filed matter in this District Court? (Yes or No) No
If yes, J udge Case No.

Defendant(s) in federal custody as of

Defendant(s) in state custody as of

Rule 20 fromthe °~~ District of

Is this.a potential death penalty case? (Yes or No) No
Does this case originate from a matter pending in the Northern Region of the US. Attorney’ s Office

. prior to August 8, 2014 (Mag. Judge Shaniek Maynard? (Yes or No) No

Does. this case originate from a matter pending-in the Central Region of the U. S. Attorney’s Office |

_ prior to October 3, 2019 (Mag. Judge Jared Strauss? (Yes or No) No

DOJ Trial PHER KE
- Court ID No. a


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