MoviePass Won’t Get a Pass From Fraud Probe

by: The Knowledge Group

October 30, 2018


New York Attorney General Barbara Underwood is investigating MoviePass parent company Helios & Matheson Analytics Inc. over allegations that the company misled investors about its financial situation. The probe aims to defend New York investors and the integrity of New York’s financial sector, Underwood explained in a tweet confirming the probe. The company asserts it never misled investors.

For New York-based MoviePass, it’s another day, another crisis. The company has desperately sought emergency cash in attempts to pay creditors and cover its losses. And the company faces class actions from shareholders who claim MoviePass misrepresented its prospects in PR materials touting its “sustainable” model.

Last quarter, Helios and Matheson reported $100 million in losses, leaving very little hope that its remaining assets can save it.

The Fall of a Startup Sensation

It wasn’t supposed to be like this. The company made itself an overnight sensation by selling shares not to institutional investors but to the public. The fundraising brought in tens of millions of dollars.

MoviePass offered a tantalizing $9.95 monthly plan that let subscribers go to a film a day. The strategy? To pull in advertising revenue, and to generate so many film fans that cinemas would offer to share a portion of revenue. But the deal was too good to last. Needing more income, MoviePass limited the number and variety of films for subscribers and raised rates. Stock values plummeted. Worse still, cinema giant AMC Entertainment Holdings Inc. moved in on MoviePass’s territory by introducing a rival subscription plan.

Martin Act in Motion

The probe will employ New York’s famously powerful Blue Sky statute. The Martin Act‘s Section 352 empowers the attorney general to broadly define “fraudulent practices” and to aggressively confront the actors.

Potential liability goes well beyond its scope under the common law. The AG may file a civil suit, criminal charges, or both. Criminal penalties can go up to four years’ imprisonment.

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