Over the past 10 months, MoviePass has become a darling of cost-conscious moviegoers and a star on the tech scene. In less than a year, It has gained more than 3 million users, lending weight to its claims that the service is changing the way film buffs take in the silver screen.
Some critics haven't been applauding. The service, which lets users see a movie a day for $9.95 a month, has been panned over its data collection practices. It has also repeatedly shifted its user terms, changing both pricing and number of movies that can be seen in a month. On June 22, it announced it would start charging higher fees to see the most popular movies.
And now, it faces competition from AMC, which on June 20 announced a $19.95 package that provides access to three movies a week, on any type of screen including IMAX.
Despite MoviePass's popularity, its publicly traded, Miami- and New York-based parent, Helios and Matheson Analytics (symbol: HMNY), has been unable to gain a solid financial foothold. Since the beginning of the year, multiple analysts have sounded the alarm over its lack of cash. MoviePass, which works by buying out blocks of tickets at full price from participating theater chains like Mark Cuban's Landmark, is not turning a profit — hurting Helios' bottom line. Company officials have said they plan to boost MoviePass revenues by selling data about moviegoing habits to theaters and studios, and eventually, get a cut from concession sales.
The company also got a lifeline when Verizon made a significant investment in April, acquiring 9 percent of the company.
Directing the scenes at Helios is Ted Farnsworth, 56, a longtime Florida resident with a colorful entrepreneurial background. In July 2016, Helios merged with a private startup run by Farnsworth called Zone Technologies, a digital crime-mapping platform. The merger allowed Zone shareholders to gain stock in Helios — and allowed Helios to meet the minimum $2.5 million market cap requirement to remain listed on the NASDAQ exchange, according to a Helios filing.
In January 2017, Helios named Farnsworth as CEO. That August, Helios purchased a majority stake in MoviePass. At the time, MoviePass charged $30 a month and had sluggish user growth. Under Farnsworth's leadership, MoviePass dropped its price to $9.95. Farnsworth's compensation was $8.9 million in 2017, according to Helios's annual report.
"Hollywood is being run out of Miami," he told the Herald in April.
With MoviePass's $9.95 model, Farnsworth seems to have produced a blockbuster idea for consumers. If it pans out, it would boost a ragged business track record. SunBiz, the official Florida business registry, shows that over the past three decades, Farnsworth has registered more than 50 different companies in Florida, including energy drink ventures, a hotel group, and a video company. He also founded a psychic hotline that featured La Toya Jackson as a spokeswoman.
Of those 50, only four remain active, according to Sunbiz. They are Zone Technologies, Stitch Videos, Day Dreamer Charter and Farwest Haiti Mission.
Farnsworth declined to comment for this story, and the circumstances surrounding most of those business closures are not revealed in public documents. But a review of court filings and government databases shows many of his inactive ventures have drawn ire from consumers, investors and business associates, sometimes resulting in legal action.
The hotline, the Psychic Discovery Network, was mentioned in a 1998 notice from the Federal Trade Commission warning about pay-per-call services as having received more than 50 complaints. Bloomberg first reported the information.
Three other ventures — XStream Beverage Network Inc., Purple Beverage Co., and vitamin marketing firm LTS (or "Live The Source") Nutraceuticals Inc. — went public while associated with Farnsworth. In each case, share values fell 99 percent within three years, rendering the value of each at less than $1 per share, according to a Bloomberg article. SunBiz records show Farnsworth, the registered agent for each, was CEO of XStream and Purple Beverage, and chairman of LTS.
Farnsworth was also CEO for The Source Vitamin Company when it was evicted from its Coconut Creek offices through a 2013 court proceeding.
Beyond these business woes, since 1990 Farnsworth personally has been liened 11 times for failing to pay federal income taxes on time. The most recent IRS settlements, dated February 2018, were for more than $100,000 for taxes due in 2016.
In addition, in 1993, Farnsworth filed for personal bankruptcy.
Earlier this week, Business Insider reported that Helios' current board member and investor Muralikrishna Gadiyaram also has a troubled past. Gadiyaram, Helios' third-largest shareholder, served as chief executive of an Indian company that owned 75 percent of Helios under the name Helios and Matheson Information Technology. An Indian court ordered the liquidation of that company after it failed to repay creditors, according to Business Insider.
In civil proceedings, Farnsworth and his affiliated entities have been sued in South Florida at least eight times since 2010. All allege breach of contract stemming from unpaid bills or settlements.
The most serious allegation against Farnsworth came in a 2006 lawsuit. Leonard Fellez, who had moved with his wife from Florida to Washington state, claimed in his complaint that in 2001, he realized Farnsworth and a business partner had "unlawfully misappropriated" funds from investments Fellez had made over the years in Farnsworth's ventures when he was still living in Florida. Fellez said in the suit he had been introduced to Farnsworth and the partner, Edward Arioli, by Fellez's lawyer, Jeffrey Klein, a Boca Raton-based attorney.
In response to Fellez's complaint, Klein proposed a settlement in which Farnsworth would sell Fellez shares in XStream Beverage, the suit said.
Fellez accepted the offer. But by 2006, Fellez said in the suit, he concluded he had been misled into taking a bad deal, and sued.
Farnsworth, the suit alleged, had told Fellez that XStream was a thriving company positioned to capitalize on "the growing health and fitness craze," and that its board included "influential persons in the beverage industry, including former Pepsi, Dr Pepper and Canada Dry executives.'" In fact, Fellez alleged in the filing, Farnsworth knew that XStream "was not thriving" and that it had a history of losses, an accumulated deficit and would incur significant future expenses.
Fellez admitted in the suit he was "not a sophisticated investor," and relied on the trust of Klein when he accepted the shares as settlement, his suit said. He claimed he never received a prospectus for XStream stating its investment risks.
Just a few months after Fellez accepted the settlement, the suit alleged, Farnsworth and XStream engaged in "misconduct" by preparing a stock split, giving individuals more shares but reducing their value. In the run-up to the split, Fellez alleged that Farnsworth and his partners sold off. Fellez's shareholder agreement prohibited him from also selling the stock, he said. Fellez was left with 175,000 shares of restricted XStream stock that by 2006, were worth less than $1,500, he said.
In the 2006 suit, Fellez accused Farnsworth of fraud, negligent misrepresentation, and violations of Washington and Florida state securities statutes. Fellez's suit did not move forward. In a letter to a federal Florida Southern District judge, Fellez said financial hardship had cost him his ability to pay his lawyers — a hardship he says was caused by the very people they were trying to sue.
The SEC has never taken action against Farnsworth. It declined to comment on whether it had ever investigated Farnsworth.
Florida bar records show Klein remains in good standing. He did not respond to a request for comment. Arioli died in 2015.
In other suits:
- In 2010, a federal judge in Florida found in favor of a packaging company that sued Farnsworth and Purple Beverages for failing to pay $90,000. Farnsworth was ordered to pay that amount plus an addtional $12,768.99 in interest for a total of more than $102,000.
- In 2011, business partners in Palm Beach brought two related suits against Farnsworth claiming Farnsworth violated a settlement agreement rising from an unspecified dispute. One of the suits was dropped. In the others, Farnsworth was ordered to pay more than $100,000.
- In 2012, a Fort Lauderdale consultancy called Rayman and Associates sued Farnsworth seeking payment under a written consulting agreement for $35,000 related to LTS Nutraceuticals. The suit was eventually settled out of court.
- In 2013, South Florida resident Barry Honig won a judgment against Farnsworth after having sued him twice for breach of contract. According to court filings, Honig says he lent Farnsworth $500,000 in 2007. In 2011, Honig sued for repayment, court documents show. Honig and Farnsworth settled, agreeing that Farnsworth would transfer 10 million shares of LTS Nutraceuticals to an escrow account in benefit of Honig and two business partners; they expected to receive $1.5 million between them, with Honig getting $1 million. According to court documents, Honig said Farnsworth never transferred the shares. A judge ruled in Honig's favor.
- Also in 2013, FedEx sued The Source Vitamin Company, then represented by Farnsworth, saying it was owed about $26,000. A judge ruled in FedEx's favor.
- That same year, Wells Fargo sued Farnsworth and The Source over $76,000 that the bank claimed Farnsworth owed. Garry Elhalel, the attorney representing Wells Fargo, said the case was eventually dropped.
One civil case remains active. It is linked to the MoviePass acquisition by Helios.
According to court documents filed in October 2017, Farnsworth approached Miami resident Charles Arnold, a consultant, in January 2016 to help Zone find a publicly traded buyer or, alternatively, secure additional financing. Farnsworth offered to pay him 20 percent of whatever compensation or consideration Farnsworth received in a Zone refinancing or merger, according to Arnold's complaint.
Based on a conversation and text messages, Arnold says in the suit, he began working 20-to-40 hours per week on Farnsworth's behalf. The arrangement continued until July 7, 2016, when the merger between Zone and Helios was finalized. In court documents, Arnold claims he played a material role in closing the transaction though he had no written contract verifying the arrangement.
With a track record of business closures and nonpayment, Farnsworth is an unconventional choice for CEO of a publicly traded company. While it is not unusual for a business failure to end acrimoniously, said University of Miami business professor John Mezias, a track record of multiple lawsuits involving different entities is unusual.
"These are supposed to be rare events," he said.
Pat Krishnan, CEO of Helios when it merged with Zone, declined to comment. He is still listed as Helios's chief innovation officer on the company's website. Other Helios officers serving at the time of the merger could not be located.
Helios was founded in 1983, long before Moviepass hit the headlines. At the time it was The A. Consulting Team, or TACT, a technology consultancy. In the first three years after its 1997 public offering on the NASDAQ, TACT's shares traded above $100. Its shares fell as low as $2.80 during the 2001 dot-com bust and have not traded above $30 since 2005. It changed its name to Helios and Matheson, an India-based consultancy doing similar business, after a merger in 2007.
After an initial burst of excitement over MoviePass' prospects, Helios' fortunes have declined. According to the company's annual filing on April 17, an independent auditor wrote there was “substantial doubt” about Helios' ability to stay in business. Just last month, the company warned in its quarterly financial filing that it could soon run out of cash.
Michael Pachter, an analyst with Wedbush Securities, says MoviePass' and Helios' current model isn't working. "They’re selling dollars for quarters," he said, explaining that the cost for MoviePass to subsidize multiple viewings a month is outpacing its ability to raise revenues. The company's strategy — to sign up so many subscribers that it can negotiate theater discounts and a cut of concession sales — has yet to pay off, Pachter said.
The company's now-largest investor, Verizon, did not immediately confirm whether it had knowledge of Farnsworth's background. Other institutional investors include Vanguard Group Inc., which holds 3 percent of Helios' outstanding shares, and Morgan Stanley, which owns 2.1 percent. Mutual funds from T. Rowe Price and Fidelity own a fraction of a percent.
After hitting a 12-month high of $32.90 in October, Helios shares closed Wednesday at $0.21, down 15 percent.
For investors, the experience has been dizzying. Bob Visse, a Helios investor, has written on his blog that, while some of Farnsworth's recent moves have made him more confident, he remains skeptical that he is the right person for the job. Reached by email, he said he was not aware of the extent of Farnsworth's past legal troubles.
"You don’t want potential partners & consumers to have to question if they are about to do business with a company that could be failing imminently," he wrote earlier this month.