New York Attorney General Barbara Underwood has launched an investigation into the parent company of popular movie-ticket subscription service MoviePass for allegedly misleading investors, according to CNBC. The attorney general’s office is probing whether Helios and Matheson (HMNY) “misled the investment community regarding the company’s financials,” CNBC reported, citing a “source familiar with the matter.” The investigation is in its “early stages,” according to the report. Neither the attorney general’s office nor the company immediately returned requests for comment from Business Insider. Business Insider reported in August that Helios and Matheson had covered hundreds of millions in losses by selling millions of new shares of stock to shareholders, and that company CEO Ted Farnsworth had made several promises to investors at a July shareholders meeting that began to unravel soon after. Business Insider also interviewed Helios and Matheson shareholders in July who expressed frustration with management. Many had seen their stakes dwindle over 99% in value and some had lost more than $100,000. Several also felt misled by Wall Street analysts who kept “buy” ratings on the stock while their banks made millions in fees selling Helios and Matheson stock as it collapsed. Helios and Matheson has a long and complicated history that Business Insider outlined in a piece in July. The company was once the US subsidary of an Indian company (Helios and Matheson Information Technology) which stands accused of defrauding at least 5,000 creditors in India, including banks and senior citizens. HMIT began to extricate itself from the US business in 2016 when HMNY merged with Farnsworth’s money-losing startup, Zone Technologies. Since then, HMIT’s ownership stake has dwindled, though executives from the Indian company remain involved with the MoviePass owner. Helios and Matheson in New York bought MoviePass in August of last year, and drastically dropped the monthly price to $9.95, a move which meant that the company could lose money on some customers who went to just one movie per month. That move has meant a skyrocketing user base and losses to match. In recent months, MoviePass has tried to get its cash burn under control by introducing features unpopular with users like limiting showtimes and capping usage at three movies per month. But it has continued to cover losses by selling new shares and diluting previous shareholders. This strategy has angered many investors. On Tuesday, Helios and Matheson announced that it had postponed a crucial shareholders meeting until November 1. At the meeting, Helios and Matheson will ask for approval on an amendment for a one-time reverse stock split of up to 1-for-500 shares. The 1-for-500 reverse split is the latest attempt by Helios and Matheson to revive the stock, which if it continues trading below $1 could be delisted from the Nasdaq by mid-December. However, the last reverse split Helios and Matheson enacted in July did not prove successful in stabilizing the stock price, as it began to crash immediately following the 1-for-250 reverse split. Helios and Matheson stock was trading at around $0.02 on Wednesday.
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