Theodore Farnsworth, former CEO of Helios & Matheson Analytics Inc. (HMNY), has admitted securities fraud and conspiracy charges.
Farnsworth, 62, admitted to deceiving investors in two publicly traded companies, MoviePass and Vinco Ventures over several years.
How the Fraud Worked
Farnsworth’s schemes focused on inflating stock prices by misleading investors about company operations.
- MoviePass “Unlimited” Plan: Farnsworth falsely marketed the $9.95 per month subscription plan as sustainable and profitable. In reality, the plan was a short-term strategy to attract subscribers and boost HMNY’s stock price.
- AI and Big Data Claims: He claimed HMNY used advanced technologies to monetize MoviePass subscriber data. No such technology existed or was implemented.
- Revenue Lies: Farnsworth misled investors about non-subscription revenue streams, claiming they offset MoviePass’ losses, which was false.
- Subscriber Throttling: MoviePass employees were directed to limit heavy users’ access to reduce costs, contradicting the company’s promises of unlimited access.
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Vinco Ventures
From 2020 to 2024, Farnsworth applied similar tactics at Vinco Ventures.
- He and his co-conspirators inflated Vinco’s stock price by concealing critical business information.
- The proceeds from the fraud were diverted for personal enrichment.
- They worked to hide the scheme from regulators, law enforcement, and the media.
Legal Repercussions
Farnsworth pleaded guilty to:
- Securities Fraud: Maximum penalty of 20 years in prison.
- Conspiracy to Commit Securities Fraud: Maximum penalty of 5 years in prison.
A federal judge will decide his sentencing at a later date.
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Statements from Authorities
Principal Deputy Assistant Attorney General Brent S. Wible, head of the Justice Department’s Criminal Division, said:
“Theodore Farnsworth — formerly the CEO of two publicly traded companies — repeatedly lied to the public to artificially inflate these companies’ stock prices, defraud investors, and enrich himself and his co-conspirators.
“He concealed that MoviePass’ subscription model was a money-losing gimmick and falsely claimed that HMNY used artificial intelligence to monetize MoviePass’ subscriber data, among other misrepresentations.
“The Criminal Division is committed to protecting investors from criminals who engage in fraudulent schemes, including those that employ AI washing.”
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A Warning to Investors
This case serves as a reminder of the risks of corporate fraud. Investors are encouraged to remain vigilant and scrutinize claims that seem overly ambitious or unsupported by evidence.
The Department of Justice and FBI continue to prioritize accountability for executives who exploit investors through deceitful practices, including those involving new technologies like artificial intelligence.
