New York AG Is Opening a Probe Into MoviePass Parent Helios

(Bloomberg) -- New York state authorities opened a securities-fraud investigation into whether the owner of the embattled MoviePass subscription service misled investors about its finances.

The probe of parent company Helios & Matheson Analytics Inc., opened under the state’s powerful Martin Act, was confirmed Thursday in a tweet by New York Attorney General Barbara Underwood.

“My office is committed to protecting New York investors and the integrity of our financial markets,” Underwood said in the tweet.

New York-based MoviePass, which has been battling for survival since it slashed prices last summer, said Wednesday in an email that it’s fully cooperating with the inquiry. CNBC reported the probe earlier Wednesday.

“We believe our public disclosures have been complete, timely and truthful and we have not misled investors,” the company said. “We look forward to the opportunity to demonstrate that to the New York Attorney General.”

MoviePass is already facing at least two class-action lawsuits in which shareholders claim the company omitted and misstated its financial prospects in press releases when it touted a “sustainable” business model.

MoviePass’s $9.95 monthly plan allowed subscribers to see a film a day in theaters. The company’s strategy was to generate so many customers that theaters and movie studios would share a cut of concessions or ticket revenue, or that it would generate revenue from advertising. MoviePass even moved into buying movies for distribution, allowing it to use the service to promote those films.

The service was so popular it drained the company of cash. MoviePass was in effect fueling U.S. moviegoing, selling tickets to theaters that sometimes charged more than $15 per show. The national average U.S. ticket price is over $9.

Unlike most startups, MoviePass has mostly financed itself by selling shares to the public rather than to institutional investors, and excitement over the service allowed it to raise tens of millions of dollars. Shares are down more than 99 percent from their peak last year. Helios & Matheson’s accountants warned that there was substantial doubt over it as a going concern.

In recent weeks the company dropped its unlimited offering, now allowing users to go to theaters only three times a month, and limited the availability of big popular movies to stem the cash burn. But MoviePass also faces competition from AMC Entertainment Holdings Inc., the biggest operator of movie theaters in the U.S., which has launched a rival subscription plan.

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