MoviePass Ex-Chairman Targeted ‘Reddit Crowd’ With Failed TikTok Rival

The corporate he’d based, Zash World Media and Leisure, had agreed on a deal to merge with a little-known entity known as Vinco Ventures, placing Farnsworth again towards the highest of a publicly traded firm.

A press launch asserting the tie-up described the cofounders as “three of probably the most profitable and disruptive leaders within the leisure trade.” The discharge included buzzwords similar to livestreaming and user-generated content material. The corporate would construct a “digital Hollywood,” the assertion mentioned.

Vinco’s inventory spiked 196%.

Behind the scenes, the hedge fund Hudson Bay Capital, a key financer of MoviePass’ mum or dad firm, had quietly made its first funding in Vinco.

The Ted Farnsworth playbook gave the impression to be set in movement as soon as once more.

Takeovers and implosions

Over the previous 20 years, Farnsworth has been concerned with over 20 totally different companies and taken control of several publicly traded companies, the newest of which was Vinco. Every public firm noticed a large stock-price enhance earlier than crashing.

To grasp Farnsworth’s ways, Enterprise Insider spent months interviewing 11 insiders near Vinco and Farnsworth and reviewing lots of of pages of inner paperwork, public firm filings, and lawsuits. A lot of the insiders requested to stay nameless for concern {of professional} repercussions, although BI has confirmed their identities and employment.

The insiders and courtroom information described a technique by which Farnsworth would become involved with a publicly traded firm, assist elevate funding from his finance connections at favorable phrases for them, and drive up the corporate’s inventory with splashy bulletins.

“Ted is P.T. Barnum,” John Fichthorn, a hedge-fund supervisor, advised BI. “You want a man who’s prepared to go onstage and inform a narrative and get funding within the inventory.”

Then it could all implode.

Vinco could also be Farnsworth’s final company collapse. He was charged in November 2022 with securities fraud, with the federal government alleging he defrauded buyers in MoviePass’ mum or dad firm, Helios and Matheson Analytics. He has pleaded not responsible and is awaiting trial. Farnsworth can also be dealing with a number of lawsuits tied to Vinco.

“It is probably the most cash I’ve ever misplaced in my life,” mentioned Shadwrick Vick, an investor who goes by Retail Rudy on-line and misplaced about $500,000 on his funding in Vinco. He holds 11,825 shares that he purchased at a median worth of $41.68, reflecting the outcomes of a 2022 spinoff and a 2023 reverse break up earlier than the inventory acquired delisted. The shares are actually price lower than a cent every.

Vick is a part of a shareholder group that filed a lawsuit, which has since been dismissed, towards Farnsworth and a number of other different present and former Vinco leaders, together with Farnsworth’s romantic and enterprise companion Roderick Vanderbilt, who’s nonetheless the chairman of the corporate. Vick has additionally sued two hedge funds that invested in Vinco in a criticism that alleges they made “predatory loans” to the corporate. That case remains to be pending.

“This was not an accident,” Vick mentioned. “These guys deliberate to take down the corporate,” referring to Farnsworth and his allies.

The Farnsworth playbook

Farnsworth sports activities a pleasant grin and seemingly boundless enthusiasm for what he’s hocking at a given second, which has included a psychic hotline promoted by La Toya Jackson within the Nineties and a beverage firm within the early 2000s.

But it surely was MoviePass that actually moved Farnsworth into the highlight.

The movie-subscription service was acquired in 2017 by Helios and Matheson Analytics. Farnsworth, then the CEO of the mum or dad firm, dropped the month-to-month subscription worth, which allowed subscribers to see a film at any theater as soon as a day, from $50 to $10.

The transfer attracted thousands and thousands of subscribers and helped flip Helios and Matheson into a preferred inventory with retail merchants. However the low-cost subscription was a money-losing proposition, in the end driving Helios and Matheson to declare chapter.

At Vinco, Farnsworth employed a number of of the identical ways that he had at MoviePass and at his earlier ventures.

Farnsworth arrange Zash as a shell company to accumulate companies related to buzzy sectors. In Vinco, he discovered a public firm in want of a lifeline and proposed a merger.

This allowed him to take management of a publicly traded firm that he might use to draw retail buyers, just like the way in which he used MoviePass to attract buyers to Helios and Matheson.

Farnsworth had been obsessive about the “Reddit crowd,” as he’d name it, since MoviePass. In leaked audio from mid-2022, Farnsworth bragged that the “Reddit crowd” drove the inventory of MoviePass’ proprietor from round $3 to $45 (the inventory truly peaked at around $38 in 2017).

And the identical Wall Avenue connections have been a part of the deal.

On the day Vinco introduced its merger with Zash, Hudson Bay struck a deal to speculate $12 million in Vinco within the type of debt that needed to be paid again with curiosity and could possibly be transformed to fairness, in what is commonly known as a structured-equity funding.

Hudson Bay additionally acquired warrants to purchase 15 million shares in Vinco at $2 a pop — in comparison with the practically $5 the inventory closed at that day because the inventory spiked 196%.

“It simply makes it costly cash,” Brian Quinn, a professor at Boston School Legislation College, mentioned of the financing construction.

The deal was organized by a longtime collaborator of Farnsworth’s, Michael Hartstein at Palladium Capital Group, which had helped elevate capital for his firms stretching again to the mid-2000s. (Hartstein and Palladium didn’t reply to requests for remark from BI.)

Palladium positioned $132 million worth of convertible notes and shares for Vinco and, per firm disclosures, was paid $14.3 million in money charges throughout a number of financing offers from January 2021 to 2022, on prime of incomes warrants.

In addition to Hudson Bay, hedge funds together with BHP Capital, Armistice Capital, and CVI Investments additionally invested in Vinco.

Inventory volatility was the important thing

Structured-equity buyers earn cash in two key methods. First, the loans should be paid again with curiosity. Second, the mortgage will be transformed to fairness, creating the chance to revenue from a rise within the inventory worth.

Within the case of Vinco, among the shares held by buyers have been what are known as unregistered shares. For the investor to promote them, there needs to be vital volatility and buying and selling quantity. That is as a result of there’s a cap on the amount of unregistered shares a vendor can commerce over a time frame (although registered shares will be moved freely).

“You want a man who can get volatility into the inventory and can make the inventory go up,” Fichthorn, the hedge-fund supervisor, mentioned. “Since you want quantity, and also you want enthusiasm to get liquidity to guard your self in your structured-equity funding.”

This was Farnsworth’s forte. He would hype up the inventory with bulletins full of buzzwords and bombastic stats. Within the case of Vinco, it touted in 2021 plans to acquire a “budding rival to TikTok” with “over 10 billion atomic clips,” and variously referred to sizzling areas just like the creator financial system, social networking, and NFTs. At one level, Vinco mentioned it could buy the National Enquirer.

Farnsworth wrote most of Zash and Vinco’s press releases throughout his time on the firms, in line with two folks conversant in the matter.

“Ted took these press releases and actually handled them like they have been artworks for him,” Matt Argall, a former advisor to Farnsworth, advised BI. “He would reword them 10 instances over earlier than submitting them to authorized.”

One other particular person near Farnsworth mentioned public relations was Farnsworth’s “fiefdom,” and also you “did not dare” become involved.

Farnsworth was significantly keen on the David versus Goliath narrative he’d beforehand spun with MoviePass by pitting it against the most important movie-theater chain on the planet, AMC Theatres.

“Folks do not understand, for MoviePass, I picked a struggle with AMC, which drove us to the No. 1 shopper story for 2 years in a row,” Farnsworth mentioned within the leaked audio. “AMC would take a pop at me, I would take a pop at them … It was David versus Goliath.”

Farnsworth takes purpose at ‘unhealthy, unhealthy, unhealthy’ TikTok

Early within the pandemic, TikTok’s consumer base was booming within the US, however the firm had begun dealing with political scrutiny over its mum or dad firm’s ties to China. Farnsworth noticed a chance.

In mid-2021, Zash and Vinco purchased majority management of Lomotif for $109 million. They said in a press release on the time of the funding that the app was “one of many prime short-form video platforms on the planet,” and the mixed firms can be price over $5 billion, citing a current “personal financing comparable valuation by Gemini Valuation Companies.”

Hudson Bay bankrolled the Lomotif deal, lending Vinco $120 million in convertible notes. The app’s potential to tackle TikTok was the primary cause Hudson Bay took an curiosity in Vinco, an individual conversant in Hudson Bay’s funding advised BI.

That deal and different bulletins helped drive the inventory to a pre-reverse-split excessive of $12.49 throughout intraday buying and selling on September 8, 2021, or the equal of $169.92 after a later spinoff and reverse break up.

“TikTok’s unhealthy, unhealthy, unhealthy — and we are the saving grace. We’re a US digital firm,” Farnsworth mentioned within the leaked audio.

Farnsworth launched into a wave of spending. Vinco introduced a number of splashy plans in 2021 that included taking on a 52,000-square-foot film studio in Syracuse, New York, as its base for creating content material; buying the promoting firm AdRizer to assist usher in income; and forming Cryptyde, its blockchain and crypto-mining play, which Vinco would later spin out into an organization known as Eightco Holdings.

One of many first issues Farnsworth did after buying a big stake in Lomotif was market it by holding the Dandelion Music Competition, an all-day, free live performance in Syracuse, in October 2021.

Argall recalled that in the midst of the pageant, Farnsworth turned to him and, over the blaring home music, screamed: “It is wonderful what you are able to do with public cash,” referring to the entry to capital that publicly traded firms have. Farnsworth denied saying this by way of his lawyer in an announcement to BI.

One VIP who attended advised BI they have been blown away by the pageant’s excessive manufacturing worth — full with a large inexperienced room on the film studio, which turned out to be probably the most motion it could get throughout Farnsworth’s reign — however have been baffled by the way it all could possibly be executed with out charging attendees. A number of folks instantly concerned with the pageant mentioned it price about $2 million to tug off.

Lomotif was additionally a companion on the widespread electronic-dance-music pageant EDC Las Vegas in 2021 and 2022, the place, in line with a number of folks conversant in Vinco’s plans, Farnsworth spent thousands and thousands of {dollars} to lure stars like Lil Nas X, The Kid Laroi, Snoop Dogg, and Grimes to indicate up as shock visitors.

Farnsworth additionally as soon as supplied a $1 million donation — with a public handoff of a large test — to the founding father of a nonprofit arts pageant within the southern Adirondacks. The founder mentioned Farnsworth later despatched paperwork requesting possession of the pageant as a contingency of his donation (BI has considered the paperwork). The founder declined. Farnsworth, by way of his lawyer, denied he engaged with the humanities pageant in a fashion “inconsistent with its non-profit standing.”

The smoke and mirrors of Farnsworth’s ‘TikTok killer’

Farnsworth was spending massive on selling the app, however issues plagued the platform.

Farnsworth had boasted in July 2021 that his “TikTok killer” app had greater than 31 million monthly active users. However an inner Lomotif report from January 2022 advised a distinct story: Simply 6.2 million folks had used the app within the earlier month.

Argall, who had requested the info, acquired a panicked cellphone name from Farnsworth after seeing the report. He wished to see Argall instantly on the downtown Tampa Marriott the place he was staying. When Argall acquired there, Farnsworth’s room was a large number of empty snack wrappers and rumpled bedsheets.

“Ted was in full meltdown mode … shaking, crying, and terrified,” Argall advised BI. “Seeing the info, he realized there was no approach on earth this property was price $5 billion.”

Farnsworth appeared livid at Argall. He mentioned Farnsworth appeared him within the eyes and mentioned: “You may have put my life in danger.”

5 months later, Farnsworth acquired but extra proof that his “TikTok killer” was something however that.

An electronic mail to Farnsworth mentioned that when Vinco and Zash purchased into Lomotif, “a considerable quantity” of customers have been “double and triple counted.” It additionally mentioned there have been “further issues with the product,” together with that Lomotif had “lots of of hundreds (or extra) of consumer views that could not probably come from people.”

“For example, we discovered one consumer who watched 3,000 movies in a row, one each 30 seconds. 25 straight hours of watching the identical video. Inconceivable,” the e-mail learn.

The e-mail was despatched to Farnsworth by the Boston-based data-analysis firm Get2it, which had compiled a report for Zash on Lomotif information from Could 2020 by way of March 2021. BI reviewed the e-mail and information report.

Get2it’s CEO, Allan Stern, refused to provide any reporting about Zash and initially declined to remark to BI on the report. Farnsworth’s lawyer mentioned the report had been “discredited at a later date when Get2it found a glitch in its personal software program.” When requested to reply to the lawyer’s remark, Stern advised BI: “There was no software program used on this work effort, so there couldn’t be a ‘glitch.’ As an alternative, all we do is take shopper information from their very own methods and analyze that information. Whoever advised you this does not perceive our course of or is purposely prevaricating about it.”

Regardless of the Get2it report, press releases about Lomotif have been nonetheless rosy towards the top of 2022 — an October release that yr mentioned Lomotif had “about 225 million app installations” globally.

A rescue plan fails

Behind the scenes, Farnsworth had begun attempting to overtake the app. Vinco had hired a company called AI Pros to construct a brand new model of the app that the corporate would license and roll out within the US.

The Lomotif app had largely been a catastrophe up till that time, “crashing left and proper” when it launched in India in 2021, Farnsworth mentioned within the leaked audio from mid-2022. “Lomotif’s fucked,” he added within the leaked audio, referring to the technical challenges. Farnsworth mentioned by way of his lawyer that he was by no means conscious that “Lomotif was ever in a state of affairs of dealing with an irreversible pc software program downside.”

The app additionally generated no vital income for Vinco by way of September 30, 2022, which was the final interval for which the corporate filed monetary statements.

Despite Lomotif’s points, Vinco plowed forward and, in December 2022, agreed to purchase Zash’s finish of the three way partnership and forgave about $60 million it had loaned to the corporate.

By that time, the inventory was cratering as buyers started to appreciate it was a lemon. The corporate was operating low on money and behind on submitting financials with the SEC. And a few nasty boardroom infighting that included naming Farnsworth briefly as co-CEO of Vinco led to excessive management turnover.

Farnsworth had one other trick up his sleeve, nevertheless. In February 2023, he introduced that Vinco and Icon Publishing, his subsequent obvious shell firm, have been forming a three way partnership to purchase the print and digital property of the Nationwide Enquirer, Nationwide Examiner, and Globe.

This was going to be their NFT play leveraging the media manufacturers’ IP. However they missed the second on NFTs, and regardless of getting some press consideration — including an interview with Farnsworth in The New York Times — the plans failed to attract vital investor curiosity, together with from Hudson Bay, and fell aside a number of months later.

Farnsworth sits in jail whereas lawsuits pile up

Since August, Farnsworth has been sitting in a Miami jail cell.

Farnsworth was charged in November 2022 with one rely of securities fraud and three counts of wire fraud stemming from his time at MoviePass and was launched on a $1 million bond.

Throughout Farnsworth’s outing on bail, he confirmed a “marked disregard” for the legislation, in line with Decide Robert N. Scola Jr. of the Southern District of Florida. Farnsworth traveled from his house in upstate New York to Miami on a number of events with out notifying his probation officer and was concerned in a home incident (not involving anybody related to Vinco) that resulted in a restraining order, which he additionally did not report.

In a listening to in August, Scola mentioned Farnsworth had “a longtime sample of withholding and concealing info from legislation enforcement and others, and that neither his indictment nor his situations of launch deterred him from committing new crimes,” Bloomberg reported.

Farnsworth’s bail was revoked, and he is now in jail awaiting his courtroom date in July.

It is unclear how Farnsworth will fare within the upcoming trial. However Zash and Vinco — like lots of his different ventures — have led to failure. On a regular basis buyers have been the large losers.

Vinco stock has lately been price lower than one cent.

Vick, the investor who was among the many 2,800 shareholders who filed a lawsuit towards Farnsworth and different Vinco execs, has continued the struggle. In January, he filed a criticism that targets Vinco’s hedge-fund backers, alleging that Hudson Bay and BHP Capital have been “‘poisonous’ lenders” and that Hudson Bay made $253 million in revenue from Vinco off its convertible notes and warrants.

The case has since been stayed by the courtroom as Vick appears to be like for brand new illustration after his lawyer dropped the case. Hudson Bay has not been served the lawsuit as of the publication of this story.

“Hudson Bay’s funding in Vinco Ventures was a typical, mounted worth convertible mortgage of which thousands and thousands stay unpaid,” Hudson Bay advised BI in an announcement. “If served, Hudson Bay will search to have these baseless, factually flawed and frivolous claims, which have been repeatedly dismissed in different proceedings towards different events, dismissed expeditiously.”

BHP Capital didn’t return a request for remark from BI.

The swimsuit additionally alleged that Farnsworth — who took credit score in a July 2022 letter to Vinco staff for “elevating lots of of thousands and thousands of {dollars}” for the corporate — and the Vinco administrators Vanderbilt and Jesse Legislation had conflicts of curiosity and used the funding within the litigation for “self-dealing, mismanagement, company waste, breach of fiduciary responsibility, and fraud.”

Farnsworth denied these allegations in an announcement by way of his lawyer, and Vanderbilt didn’t return BI’s a number of requests for remark. Legislation declined to remark for this story.

Traders aren’t the one ones circling. Three folks advised BI that the Federal Bureau of Investigation had been wanting into Vinco and Farnsworth.

“Wall Avenue is basically corrupt,” Vick mentioned. “These guys simply steal. They steal your cash. And they’re so conceited that they have to be put of their place.”

Katherine Lengthy contributed further reporting.