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MoviePass has been dead for nearly two years. But the execs behind ill-fated company have only just reached a settlement with the Federal Trade Commission over charges that they misled customers and also failed to take reasonable steps to protect user data.
The principal executives of MoviePass — the theater-subscription company that shut down in September 2019 — reached a settlement with the FTC over the allegations, the agency announced Monday.
Under the proposed settlement with the FTC, MoviePass, Helios and Matheson Analytics, Mitch Lowe (former MoviePass CEO) and Ted Farnsworth (former Helios and Matheson CEO), will be “barred from misrepresenting their business and data security practices,” according to the agency. In addition, any businesses controlled by MoviePass, Helios or Lowe must “implement comprehensive information security programs.”
MoviePass in September 2019 notified remaining subscribers that it would be shutting down indefinitely, saying at the time that its “efforts to recapitalize MoviePass have not been successful to date.” In January 2020, MoviePass parent Helios and Matheson Analytics filed for Chapter 7 liquidation, after sustaining massive financial losses.
In its complaint, the FTC alleged that MoviePass — along with Lowe and Farnsworth — deceptively marketed its “one movie per day” service promised to subscribers who paid for the $9.95 monthly service.
The FTC alleged that MoviePass used three tactics to prevent subscribers from using the service as advertised.
First, according to the FTC, MoviePass’s operators invalidated subscriber passwords while falsely claiming to have detected “suspicious activity or potential fraud” on the accounts. Second, MoviePass execs launched a ticket-verification program to discourage use of the service, which required subscribers to take and submit pictures of their physical movie ticket stubs for approval through the MoviePass app within a certain timeframe. That, according to the FTC’s complaint, “blocked thousands of subscribers from using the service because of problems with the verification system.” Third, MoviePass’s operators used “trip wires” that blocked certain groups of users — typically those who viewed more than three movies per month — from using the service after they collectively hit certain thresholds based on their monthly cost to the company, the FTC alleged.
“MoviePass and its executives went to great lengths to deny consumers access to the service they paid for while also failing to secure their personal information,” Daniel Kaufman, acting director of the FTC’s Bureau of Consumer Protection, said in a statement. “The FTC will continue working to protect consumers from deception and to ensure that businesses deliver on their promises.”
Per the FTC’s complaint, Lowe and Farnsworth were personally involved in the scheme. For example, Lowe is alleged to have personally ordered subscribers’ passwords to be disrupted — and he even chose the number of consumers to be targeted. Meanwhile, the agency’s complaint alleged, a company employee sent an email on Farnsworth’s behalf proposing a misleading consumer notice about the password disruption. Both executives knew their scheme was deceptive and harmful to consumers, according to the complaint.
The FTC alleged that MoviePass’s operators also violated the Restore Online Shoppers’ Confidence Act (ROSCA). That federal law requires that firms be truthful with consumers when marketing negative-option services (such as subscriptions) over the internet. This means disclosing all material terms, and obtaining consumers’ informed consent before charging them.
In addition, MoviePass’s operators failed to take reasonable steps to secure personal information it collected from subscribers, including their names, email addresses, birth dates, credit card numbers, and geolocation information, the FTC alleged. For example, the company stored consumers’ personal data including financial information and email addresses in plain text and failed to impose restrictions on who could access personal data. Shortly before MoviePass shut down, the company acknowledged that private customer information may have been exposed online.
The FTC’s order “does not include monetary relief for consumers,” the agency said, citing Helios and Matheson’s bankruptcy filing.