MoviePass Owner Sued by Shareholders as Business Model Falters
(Bloomberg) -- The owner of MoviePass Inc., the hard-pressed movie-theater ticket subscription service, is facing two class-action lawsuits alleging investors took a bath because the company didn’t come clean about being unable to pay its bills.
MoviePass parent Helios & Matheson Analytics Inc. omitted and misstated its financial prospects in press releases when it touted a "sustainable" business model, the shareholders claim in two lawsuits filed in Manhattan federal court.
The company’s financial troubles became apparent in July when it disclosed that its service was interrupted because it couldn’t keep up with merchant payments. Helios & Matheson had a first-quarter loss from operations of $107.7 million, compared to a loss of $4.4. million a year earlier. The value of its shares has been nearly wiped out, falling 99.8 percent in the past month to less than 5 cents.
To stop the financial drain, MoviePass stopped offering unlimited movie tickets for $9.95 a month, and as of Wednesday movie buffs can only see three films a month instead.
The news of interrupted service "helped the investment community understand what insiders clearly knew or would have known in the absence of recklessness, that there had been no reasonable basis to believe that Helios could be profitable relying on the MoviePass business model," according to a complaint filed Aug. 13.
Shareholders in both suits complain that the company lied to them by keeping grim financials secret and releasing misleading information. Both lawsuits, including one filed Aug. 2, name Helios Chief Executive Officer Theodore Farnsworth and Chief Financial Officer Stuart Benson as defendants in the complaints. The company declined to comment on the lawsuits.
"We’ve reached an important point in our company where, after a year of research and analysis, we believe we have fine-tuned the MoviePass business model to fit our unique growth rate," Farnsworth said in a statement Wednesday celebrating MoviePass’s one-year anniversary. "Under the new plan, we believe we are creating a more sustainable path for MoviePass and its loyal subscribers.”
The cases are: Braxton v. Benson, 18-cv-07242; and Chang v. Helios and Matheson Analytics Inc., 18-cv-06965, U.S. District Court, Southern District of New York (Manhattan).
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