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The Attorney General of New York has launched an investigation to determine whether Helios & Matheson Analytics, the controlling owner in financial difficulty of MoviePass, a supplier of film subscriptions, misled investors.
The investigation is being conducted by the New York Attorney General's Office, Barbara G. Underwood, under the Martin Act, an anti-fraud law that allows the Attorney General to investigate securities and securities fraud. prosecute alleged offenders.
Underwood confirmed the probe in a tweet She wrote Thursday morning: "We have initiated a securities fraud investigation at @MoviePass's parent company. My office is committed to protecting New York investors and the integrity of our capital markets. The New York AG office did not respond to a request for additional information on the HMNY probe.
In a statement to VarietyHelios & Matheson said, "We are aware of the New York Attorney's investigation and are cooperating fully. We believe that our public disclosures have been complete, timely and truthful and that we have not misled investors. We look forward to the opportunity to demonstrate this to the New York Attorney General. "
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CNBC first announced the start of New York AG's investigation of Helios & Matheson.
Earlier this year, MoviePass claimed to have exceeded 2 million subscribers to its service, allowing customers to see one movie a day for only $ 9.95 per month. But the agreement was too good to be true: the increase in the number of users resulted in a huge loss of cash for HMNY and the company was forced to take out several loans. In order to stay afloat, MoviePass dramatically changed its offer in August to limit customers to three movies per month at the same price and limit access to high-circulation films at peak times.
Investors did not hide their dissatisfaction with Helios & Matheson's alleged lack of disclosure. HMNY's shares are currently trading at approximately 2 cents per share, giving it a market capitalization of less than $ 25 million.
Helios & Matheson and key executives have been named in a lawsuit filed on August 13 on behalf of shareholder Jeffrey Braxton in the US District Court of the Southern District of New York, alleging that the company had deceived investors . According to the lawsuit, which seeks class action status, "MoviePass's business model was unsustainable because there was no reasonable basis to believe that MoviePass could monetize the model to a point that could be maintained before to be too indebted to survive. "
Also in August, Carl J. Schramm, former President and CEO of the Ewing Marion Kauffman Foundation, resigned from the Helios & Matheson Board of Directors. In his letter of resignation to Ted Farnsworth, CEO of HMNY, Schramm stated that the company had not provided information about his financial situation and activities.
According to Schramm, the management of Helios & Matheson hid "important information" from the board for several months. "As you know, for several months I have raised questions and expressed concerns about the corporate governance of Helios and Matheson Analytics, Inc.," wrote Schramm in the letter, such than filed with the SEC. "I objected to the way management has presented the board with a number of business decisions, without giving it enough time to review complex documents, review important transactions, or discuss how proposed measures are taken into account. the strategic plan of the company. "
In response to Schramm's letter, HMNY said in a letter filed on August 25: "The company is not aware of unanswered requests for information from Mr. Schramm. The Board of Directors and the committees of which Mr. Schramm was a member have met at least 25 times in duly convened meetings until now in 2018, and the company is firmly convinced that it has held the board of directors fully informed and provided all necessary information to the members of the board of directors. exercise their responsibilities. "
In a regulatory document filed on October 4, Helios & Matheson stated that it raised $ 65 million in August and September through the sale of its shares under an existing share distribution agreement and payments Investors' "advance of certain existing investor notes payable to the Company".
HMNY disclosed in the same document that the Canadian investment bank Canaccord Genuity had terminated its share distribution agreement with Helios & Matheson, which had allowed it to sell the company's shares.
Helios & Matheson announced this week that the proxy advisory firms ISS and Glass, Lewis & Co. had recommended to HMNY shareholders to vote for a proposed share split at the company's special meeting scheduled for Thursday, October 18th. The 1: 500 Share Consolidation Proposal – converting each 500 HMNY Shares into one Share – is designed to restore compliance with the Nasdaq Capital Market Minimum Bid Price of $ 1 per share. That's after the company adopted a reverse stock split from 1 to 250 in July.
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