Theodore Farnsworth, the former chief executive of the parent company of MoviePass, pleaded guilty to securities fraud on Tuesday after federal prosecutors said he had misled investors about the company’s “unlimited” subscription plan.
Mr. Farnsworth, 62, of Miami, also pleaded guilty in the Southern District of Florida to conspiracy to commit securities fraud as the leader of another publicly traded company, Vinco Ventures, Inc. He tried to inflate its stock price and took millions of dollars from the company for himself, according to prosecutors and court records.
He faces a maximum of 20 years in prison for the securities fraud count relating to his leadership of MoviePass and a maximum of five years in prison for the conspiracy count relating to his leadership of Vinco.
“Mr. Farnsworth was anxious to accept responsibility for his conduct,” Sam Rabin, Mr. Farnsworth’s lawyer, said in an email on Tuesday evening. “The most important step in doing that was to plead guilty to the crimes with which he was charged. He did that today.”
In 2017, when Mr. Farnsworth was the chief executive of Helios and Matheson Inc., which had a majority stake in MoviePass, subscribers under its plan could watch “unlimited” movies in theaters for $9.95 a month.
Mr. Farnsworth and J. Mitchell Lowe, then the chief executive of MoviePass, told investors in interviews that their plan was not too good to be true, was tested and was sustainable, prosecutors said. All along, Mr. Farnsworth knew that the plan was not tested and he misled investors to boost stock prices, prosecutors said.
“He concealed that MoviePass’ subscription model was a money-losing gimmick,” Brent S. Wible, the principal deputy assistant attorney general, said of Mr. Farnsworth in a statement on Tuesday.
Mr. Farnsworth also told investors in interviews and news releases that his firm had big-data and artificial intelligence capabilities that allowed it to increase the amount of money collected from MoviePass subscribers, prosecutors said. But this assertion also was not true and the analytics firm “did not possess the types of technologies that could be used to monetize MoviePass’s subscriber data,” prosecutors said in court records.
The specifics of Mr. Farnsworth’s guilty plea were not immediately available. Mr. Lowe pleaded guilty to conspiracy to commit securities fraud in September, according to court records. Mr. Lowe faces a maximum sentence of five years in prison.
“Mitch Lowe is a good man with a history of good deeds,” David Oscar Markus and Margot Moss, Mr. Lowe’s lawyers, said in a statement on Tuesday. “But, like all of us, he isn’t perfect. He admitted his misconduct in this case early on and is doing everything in his power to make up for it.”
The unlimited plan paid movie theaters full price for every admission — and was a financial disaster. The plan banked on the hope that more subscribers would pay the relatively meager monthly fee and not use the service. That was a miscalculation: Three million people signed up and took full advantage.
MoviePass collapsed in 2019. The company returned in 2022 and now uses a tiered, credit-based fee system without an unlimited option.
According to court records, Mr. Farnsworth has a status conference scheduled for July. There is no sentencing date scheduled, Mr. Rabin said.