California's Contra Costa County District Attorney's Office announced Wednesday that it entered into a negotiated settlement agreement with former MoviePass CEO Mitch Lowe and Ted Farnsworth, the former CEO of MoviePass' parent Helios and Matheson, after the DAs alleged they were "engaging in numerous unlawful, unfair, and fraudulent business acts and practices" while running the now-defunct movie theater subscription service.
The DA's office said Lowe and Farnsworth would pay $400,000 in civil penalties and restitution and are prohibited from engaging in any of those allegedly illegal acts or business practices.
The Contra Costa DA's office worked with three other California DA offices: Ventura, Sonoma, and San Joaquin counties.
According to the settlement, which was viewed by Insider, the alleged "unlawful, unfair, and fraudulent acts and practices" included:
- Falsely advertising that MoviePass subscriptions offer "unlimited" movie watching. Specifically, "any movie," "any day," at "any theater," when in reality MoviePass continually added limitations to customers' subscriptions.
- Unconscionably changing terms of service during a subscription period.
- Converting all prepaid "unlimited" plans to three movies per month.
- Shutting down the availability of movies when a certain dollar amount is reached, known within the company as a "trip wire."
- Failing to notify autorenewal customers of material changes to their subscriptions.
- Continuously charging customers' debit or credit cards after receiving notice of cancellation from customers.
Several of these practices were detailed in Insider's definitive rise and fall story of MoviePass. Insider reported that the "trip wire" practice was implemented after the company ran out of money the weekend "Mission: Impossible - Fallout" opened in theaters in 2018, which resulted in Lowe ordering that half of MoviePass subscribers (roughly 600,000 users) be frozen out of their accounts over the weekend.
From the story:
Per Lowe's orders, big blockbusters would no longer be available on the app. MoviePass also enforced what it called a "trip wire," an automatic shutdown mechanism for all users that would be activated if MoviePass went past a certain amount balance. If money ever ran out, subscribers would see the following message on the app: "There are no more screenings at this theater today."
Lowe and Farnsworth's attorney, Tina Sciocchetti of Nixon Peabody LLP, responded to Insider's request for comment by highlighting a portion in the settlement that states nothing in it can be "construed as an admission or denial" by Lowe or Farnsworth that they violated any laws.In the settlement, the DA referenced allegations that a 2019 data breach of the company by "a MoviePass engineer creating an unsecured and unencrypted server as a debugging tool" was not addressed until three months after being notified. The server that was compromised had more than 161 million pieces of personal identifying information, including names, MoviePass card numbers, credit card numbers, billing information, email addresses and login information, belonging to at least 58,000 consumers, according to the filing.
MoviePass surged in popularity in the summer of 2017 after Helios and Matheson bought the service and drastically lowered the price to $10 a month to see a movie per day. But it burned through hundreds of millions of dollars and failed to find a business model that didn't lead to massive losses. MoviePass finally shut down in September 2019.