By Jared P Moore
Miriam-Webster defines a “dumpster fire” as, “an utterly calamitous or mismanaged situation or occurrence.” This definition truly encompasses the current state of Moviepass. Since last fall the stock price of Helios and Matherson (“HMNY”), the parent company of Moviepass, has dropped from a high of $8,225 to just above $.02 cents. There is any number of reasons for this massive collapse, but new information has surfaced, indicating board director misconduct, that may start to piece the puzzle together.
On August 25th, Carl Schramm resigned from the HMNY board of directors. An economist, Syracuse University professor, and long-time board member of HMNY, Schramm claims that HMNY executives have mismanaged the business and withheld crucial information from the board. In his resignation letter, made public by HMNY, Schramm said, “[t]hese concerns have increased substantially over the past eight weeks as management apparently has made a number of important corporate decisions and executed significant transactions either without board knowledge or approval.” In response to these allegations, HMNY said that the company is unaware of any unanswered requests for information by Schramm and that the board and its committees that Schramm served on had met at least 25 times this year. There is no way of knowing who is telling the truth, but what is clear is that HMNY is in serious trouble.
During the time period Schramm cites in his resignation letter, Moviepass has altered its subscription plans, pricing and availability of movies customers are able to see. What began as a subscription service allowing customers to see as many as 30 movies per month, is now a subscription service limiting customers to just 3 movies per month. None of the changes made to Moviepass subscription plans have benefited customers. The company also issued a massive reverse stock split and took out a large loan to cover the costs of movie tickets. All signs point to a sinking ship doing anything they can to stay afloat.
With Schramm’s recent accusations, Moviepass and more specifically HMNY’s board of directors may be subject to a failure to meet its fiduciary duties. Fiduciary duties, also known as the duty of care, the duty of loyalty and duty of obedience are often somewhat subjective, and for that reason, unless blatant, improprieties are often more difficult to investigate and prove. A board of directors of a for-profit corporation, like HMNY, has a fiduciary duty to oversee all aspects of the organization’s operations. Board directors must be sure they are supervising the policies and procedures, and make sure they are being followed. Supervision of policies and procedures also means taking more than a cursory look at financial reports, committee reports, and other documents. It is the board directors’ responsibility to understand the reports, ask questions and challenge the information provided. Clearly, according to Schramm’s resignation letter, these procedures were not being followed.
Failure of the board to fulfill their responsibilities qualifies as misconduct. Board directors are held to a higher standard of behavior because they hold a position of greater responsibility. They are expected to be above unethical behavior both inside and outside of the boardroom. If these responsibilities are not followed there are serious consequences.
From a legal standpoint, any board director who is found guilty of misconduct may be subject to fines, lawsuits, and prison time. Board members may also be terminated for questionable financial practices. When a board member fails to honor their fiduciary duties it is not only the board member who suffers but also the reputation of the organization. Board members are never to hold their relationships above the best interests of those they serve. When one board director engages in inappropriate behavior, it’s always a reflection of the rest of the board directors and on the leadership of the organization.
In the case of Moviepass, Schramm’s accusations cast the entire HMNY board in a negative light, which only further brings down the already tarnished reputation of Moviepass. While we do not know exactly what has taken place behind closed doors, we do know that the HMNY board is in serious turmoil, and this only further exacerbates the already endless list of problems Moviepass has. What we do know for sure is that in the coming months the U.S. Securities and Exchange Commission will have something to say about these accusations and I would not be surprised if there are serious findings of misconduct with the HMNY board.
Student Bio: Jared Moore is a 3L at Suffolk University Law School. He is currently a staff member of the Journal of High Technology. Jared holds a B.S. in English and graduated from the University of Massachusetts Boston in 2014.
Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.