Parent Company of MoviePass Cooperating with Current Fraud Investigation

MoviePass was supposed to be the consuming public’s movie-house answer to Netflix, promising to provide subscribers with access to blockbuster movies at cinemas around North America, but recent developments have proven that the business model is hard to sustain. Obviously, giving daily access to movie screens across the country means fewer actual ticket sales for production companies and movie distributors and that translates to lower profits. At the end of the day, as we have seen, early adopters of the MoviePass program found their memberships denied when they went out for a night at the movies.

Well, it turns out that members were not the only ones who have gotten less than they bargained for.  Investigators are presently looking into whether MoviePass owners—Helios and Matheson—used the anti-fraud statute known as the Martin Act to mislead investors.  This is according to New York Attorney General Barbara Underwood, who has opened the probe.

MoviePass has confirmed the probe but argues they are cooperating, commenting that their public disclosures have been “complete, timely, and truthful.”

Still, MoviePass’ recent legal troubles will not help their present cause.  Indeed, the parent company posted, in the second quarter, losses of $100 million. This forced them to take out massive loans in order to cover the damages alone. After this, of course, shareholders filed a lawsuit accusing the company of “false and/or misleading” promises in the service they provide.

The early trouble stemmed from the company’s inability to keep their promise of providing subscribers with one movie ticket per day for a very reasonable monthly fee of $9.95.  This, of course, quickly grew the company’s popularity but this growth actually killed profits and the company had to adjust the primary plan which now limits the number of available movies members are able to see, raised monthly subscription price, and cut the number of films members are able to see within a one-month period.

This drove share prices of Helios and Matheson stock down, losing nearly all of its value.  With an estimated 1.5 billion shares on the market today, the company is trading at the implied valuation of only $30 million.  Furthermore, single share prices fell three percent midweek, trading at only 2 cents per share.