How the MoviePass Ex-Chairman’s TikTok Rival Collapsed, Cost Investors

The company he’d founded, Zash Global Media and Entertainment, had agreed on a deal to merge with a little-known entity called Vinco Ventures, putting Farnsworth back toward the top of a publicly traded company.

A press release announcing the tie-up described the cofounders as “three of the most successful and disruptive leaders in the entertainment industry.” The release included buzzwords such as livestreaming and user-generated content. The company would build a “virtual Hollywood,” the statement said.

Vinco’s stock spiked 196%.

Behind the scenes, the hedge fund Hudson Bay Capital, a key financer of MoviePass’ parent company, had quietly made its first investment in Vinco.

The Ted Farnsworth playbook appeared to be set in motion once again.

Takeovers and implosions

Over the past 20 years, Farnsworth has been involved with over 20 different businesses and taken control of several publicly traded companies, the most recent of which was Vinco. Each public company saw a massive stock-price increase before crashing.

To understand Farnsworth’s tactics, Business Insider spent months interviewing 11 insiders close to Vinco and Farnsworth and reviewing hundreds of pages of internal documents, public company filings, and lawsuits. Most of the insiders asked to remain anonymous for fear of professional repercussions, though BI has confirmed their identities and employment.

The insiders and court records described a strategy in which Farnsworth would get involved with a publicly traded company, help raise funding from his finance connections at favorable terms for them, and drive up the company’s stock with splashy announcements.

“Ted is P.T. Barnum,” John Fichthorn, a hedge-fund manager, told BI. “You need a guy who’s willing to go onstage and tell a story and get investment in the stock.”

Then it would all implode.

Vinco may be Farnsworth’s last corporate collapse. He was charged in November 2022 with securities fraud, with the government alleging he defrauded investors in MoviePass’ parent company, Helios and Matheson Analytics. He has pleaded not guilty and is awaiting trial. Farnsworth is also facing several lawsuits tied to Vinco.

“It’s the most money I’ve ever lost in my life,” said Shadwrick Vick, an investor who goes by Retail Rudy online and lost about $500,000 on his investment in Vinco. He holds 11,825 shares that he bought at an average price of $41.68, reflecting the results of a 2022 spinoff and a 2023 reverse split before the stock got delisted. The shares are now worth less than a cent each.

Vick is part of a shareholder group that filed a lawsuit, which has since been dismissed, against Farnsworth and several other current and former Vinco leaders, including Farnsworth’s romantic and business partner Roderick Vanderbilt, who’s still the chairman of the company. Vick has also sued two hedge funds that invested in Vinco in a complaint that alleges they made “predatory loans” to the company. That case is still pending.

“This was not an accident,” Vick said. “These guys planned to take down the company,” referring to Farnsworth and his allies.

The Farnsworth playbook

Farnsworth sports a friendly grin and seemingly boundless enthusiasm for what he is hocking at a given moment, which has included a psychic hotline promoted by La Toya Jackson in the 1990s and a beverage company in the early 2000s.

But it was MoviePass that really moved Farnsworth into the spotlight.

The movie-subscription service was acquired in 2017 by Helios and Matheson Analytics. Farnsworth, then the CEO of the parent company, dropped the monthly subscription price, which allowed subscribers to see a movie at any theater once a day, from $50 to $10.

The move attracted millions of subscribers and helped turn Helios and Matheson into a popular stock with retail traders. But the cheap subscription was a money-losing proposition, ultimately driving Helios and Matheson to declare bankruptcy.

At Vinco, Farnsworth employed several of the same tactics that he had at MoviePass and at his earlier ventures.

Farnsworth set up Zash as a shell corporation to acquire businesses connected to buzzy sectors. In Vinco, he found a public company in need of a lifeline and proposed a merger.

This allowed him to take control of a publicly traded company that he could use to attract retail investors, similar to the way he used MoviePass to draw investors to Helios and Matheson.

Farnsworth had been obsessed with the “Reddit crowd,” as he’d call it, since MoviePass. In leaked audio from mid-2022, Farnsworth bragged that the “Reddit crowd” drove the stock of MoviePass’ owner from around $3 to $45 (the stock actually peaked at around $38 in 2017).

And the same Wall Street connections were part of the deal.

On the day Vinco announced its merger with Zash, Hudson Bay struck a deal to invest $12 million in Vinco in the form of debt that had to be paid back with interest and could be converted to equity, in what is often called a structured-equity investment.

Hudson Bay also received warrants to buy 15 million shares in Vinco at $2 a pop — compared to the nearly $5 the stock closed at that day as the stock spiked 196%.

“It just makes it expensive money,” Brian Quinn, a professor at Boston College Law School, said of the financing structure.

The deal was arranged by a longtime collaborator of Farnsworth’s, Michael Hartstein at Palladium Capital Group, which had helped raise capital for his companies stretching back to the mid-2000s. (Hartstein and Palladium did not respond to requests for comment from BI.)

Palladium placed $132 million worth of convertible notes and shares for Vinco and, per company disclosures, was paid $14.3 million in cash fees across several financing deals from January 2021 to 2022, on top of earning warrants.

Besides Hudson Bay, hedge funds including BHP Capital, Armistice Capital, and CVI Investments also invested in Vinco.

Stock volatility was the key

Structured-equity investors make money in two key ways. First, the loans must be paid back with interest. Second, the loan can be converted to equity, creating the opportunity to profit from an increase in the stock price.

In the case of Vinco, some of the shares held by investors were what are called unregistered shares. For the investor to sell them, there has to be significant volatility and trading volume. That’s because there’s a cap on the volume of unregistered shares a seller can trade over a period of time (though registered shares can be moved freely).

“You need a guy who can get volatility into the stock and will make the stock go up,” Fichthorn, the hedge-fund manager, said. “Because you need volume, and you need enthusiasm to get liquidity to protect yourself in your structured-equity investment.”

This was Farnsworth’s forte. He would hype up the stock with announcements stuffed with buzzwords and bombastic stats. In 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 hot areas like the creator economy, social networking, and NFTs. At one point, Vinco said it would buy the National Enquirer.

Farnsworth wrote most of Zash and Vinco’s press releases during his time at the companies, according to two people familiar with the matter.

“Ted took these press releases and really treated them like they were works of art for him,” Matt Argall, a former advisor to Farnsworth, told BI. “He would reword them 10 times over before submitting them to legal.”

Another person close to Farnsworth said public relations was Farnsworth’s “fiefdom,” and you “didn’t dare” get involved.

Farnsworth was particularly fond of the David versus Goliath narrative he’d previously spun with MoviePass by pitting it against the largest movie-theater chain in the world, AMC Theatres.

“People don’t realize, for MoviePass, I picked a fight with AMC, which drove us to the No. 1 consumer story for two years in a row,” Farnsworth said in the leaked audio. “AMC would take a pop at me, I’d take a pop at them … It was David versus Goliath.”

Farnsworth takes aim at ‘bad, bad, bad’ TikTok

Early in the pandemic, TikTok’s user base was booming in the US, but the company had begun facing political scrutiny over its parent company’s ties to China. Farnsworth saw an opportunity.

In mid-2021, Zash and Vinco bought majority control of Lomotif for $109 million. They said in a press release at the time of the investment that the app was “one of the top short-form video platforms in the world,” and the combined companies would be worth over $5 billion, citing a recent “private financing comparable valuation by Gemini Valuation Services.”

Hudson Bay bankrolled the Lomotif deal, lending Vinco $120 million in convertible notes. The app’s potential to take on TikTok was the main reason Hudson Bay took an interest in Vinco, a person familiar with Hudson Bay’s investment told BI.

That deal and other announcements helped drive the stock to a pre-reverse-split high of $12.49 during intraday trading on September 8, 2021, or the equivalent of $169.92 after a later spinoff and reverse split.

“TikTok’s bad, bad, bad — and we’re the saving grace. We’re a US digital company,” Farnsworth said in the leaked audio.

Farnsworth embarked on a wave of spending. Vinco announced a host of splashy plans in 2021 that included taking over a 52,000-square-foot movie studio in Syracuse, New York, as its base for creating content; acquiring the advertising company AdRizer to help bring in revenue; and forming Cryptyde, its blockchain and crypto-mining play, which Vinco would later spin out into a company called Eightco Holdings.

One of the first things Farnsworth did after acquiring a large stake in Lomotif was promote it by holding the Dandelion Music Festival, an all-day, free concert in Syracuse, in October 2021.

Argall recalled that in the middle of the festival, Farnsworth turned to him and, over the blaring house music, screamed: “It’s amazing what you can do with public money,” referring to the access to capital that publicly traded companies have. Farnsworth denied saying this through his lawyer in a statement to BI.

One VIP who attended told BI they were blown away by the festival’s high production value — complete with a massive green room at the movie studio, which turned out to be the most action it would get during Farnsworth’s reign — but were baffled by how it all could be done without charging attendees. Several people directly involved with the festival said it cost about $2 million to pull off.

Lomotif was also a partner at the popular electronic-dance-music festival EDC Las Vegas in 2021 and 2022, where, according to several people familiar with Vinco’s plans, Farnsworth spent millions of dollars to lure stars like Lil Nas X, The Kid Laroi, Snoop Dogg, and Grimes to show up as surprise guests.

Farnsworth also once offered a $1 million donation — with a public handoff of a giant check — to the founder of a nonprofit arts festival in the southern Adirondacks. The founder said Farnsworth later sent paperwork requesting ownership of the festival as a contingency of his donation (BI has viewed the paperwork). The founder declined. Farnsworth, through his lawyer, denied he engaged with the arts festival in a manner “inconsistent with its non-profit status.”

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

Farnsworth was spending big on promoting the app, but problems plagued the platform.

Farnsworth had boasted in July 2021 that his “TikTok killer” app had more than 31 million monthly active users. But an internal Lomotif report from January 2022 told a different story: Just 6.2 million people had used the app in the previous month.

Argall, who had requested the data, got a panicked phone call from Farnsworth after seeing the report. He wanted to see Argall immediately at the downtown Tampa Marriott where he was staying. When Argall got there, Farnsworth’s room was a mess of empty snack wrappers and rumpled bedsheets.

“Ted was in complete meltdown mode … shaking, crying, and terrified,” Argall told BI. “Seeing the data, he realized there was no way on earth this property was worth $5 billion.”

Farnsworth appeared furious at Argall. He said Farnsworth looked him in the eyes and said: “You have put my life at risk.”

Five months later, Farnsworth received yet more evidence that his “TikTok killer” was anything but that.

An email to Farnsworth said that when Vinco and Zash bought into Lomotif, “a substantial number” of users were “double and triple counted.” It also said there were “additional problems with the product,” including that Lomotif had “hundreds of thousands (or more) of user views that couldn’t possibly come from humans.”

“As an example, we found one user who watched 3,000 videos in a row, one every 30 seconds. 25 straight hours of watching the same video. Inconceivable,” the email read.

The email was sent to Farnsworth by the Boston-based data-analysis company Get2it, which had compiled a report for Zash on Lomotif data from May 2020 through March 2021. BI reviewed the email and data report.

Get2it’s CEO, Allan Stern, refused to supply any reporting about Zash and initially declined to comment to BI on the report. Farnsworth’s lawyer said the report had been “discredited at a later date when Get2it discovered a glitch in its own software.” When asked to respond to the lawyer’s comment, Stern told BI: “There was no software used in this work effort, so there could not be a ‘glitch.’ Instead, all we do is take client data from their own systems and analyze that data. Whoever told you this doesn’t understand our process or is purposely prevaricating about it.”

Despite the Get2it report, press releases about Lomotif were still rosy toward the end of 2022 — an October release that year said Lomotif had “about 225 million app installations” globally.

A rescue plan fails

Behind the scenes, Farnsworth had begun trying to overhaul the app. Vinco had hired a company called AI Pros to build a new version of the app that the company would license and roll out in the US.

The Lomotif app had largely been a disaster up until that point, “crashing left and right” when it launched in India in 2021, Farnsworth said in the leaked audio from mid-2022. “Lomotif’s fucked,” he added in the leaked audio, referring to the technical challenges. Farnsworth said through his lawyer that he was never aware that “Lomotif was ever in a situation of facing an irreversible computer software problem.”

The app also generated no significant revenue for Vinco through September 30, 2022, which was the last period for which the company filed financial statements.

In spite of Lomotif’s issues, Vinco plowed ahead and, in December 2022, agreed to buy Zash’s end of the joint venture and forgave about $60 million it had loaned to the company.

By that point, the stock was cratering as investors began to realize it was a lemon. The company was running low on cash and behind on filing financials with the SEC. And some nasty boardroom infighting that included naming Farnsworth briefly as co-CEO of Vinco led to high leadership turnover.

Farnsworth had another trick up his sleeve, however. In February 2023, he announced that Vinco and Icon Publishing, his next apparent shell company, were forming a joint venture to buy the print and digital assets of the National Enquirer, National Examiner, and Globe.

This was going to be their NFT play leveraging the media brands’ IP. But they missed the moment on NFTs, and despite getting some press attention — including an interview with Farnsworth in The New York Times — the plans failed to draw significant investor interest, including from Hudson Bay, and fell apart a few months later.

Farnsworth sits in jail while lawsuits pile up

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

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

During Farnsworth’s time out on bail, he showed a “marked disregard” for the law, according to Judge Robert N. Scola Jr. of the Southern District of Florida. Farnsworth traveled from his home in upstate New York to Miami on multiple occasions without notifying his probation officer and was involved in a domestic incident (not involving anyone associated with Vinco) that resulted in a restraining order, which he also didn’t report.

In a hearing in August, Scola said Farnsworth had “an established pattern of withholding and concealing information from law enforcement and others, and that neither his indictment nor his conditions of release deterred him from committing new crimes,” Bloomberg reported.

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

It’s unclear how Farnsworth will fare in the upcoming trial. But Zash and Vinco — like many of his other ventures — have ended in failure. Everyday investors were the big losers.

Vinco stock has recently been worth less than one cent.

Vick, the investor who was among the 2,800 shareholders who filed a lawsuit against Farnsworth and other Vinco execs, has continued the fight. In January, he filed a complaint that targets Vinco’s hedge-fund backers, alleging that Hudson Bay and BHP Capital were “‘toxic’ lenders” and that Hudson Bay made $253 million in profit from Vinco off its convertible notes and warrants.

The case has since been stayed by the court as Vick looks for new representation after his lawyer dropped the case. Hudson Bay has not been served the lawsuit as of the publication of this story.

“Hudson Bay’s investment in Vinco Ventures was a standard, fixed price convertible loan of which millions remain unpaid,” Hudson Bay told BI in a statement. “If served, Hudson Bay will seek to have these baseless, factually flawed and frivolous claims, which have been repeatedly dismissed in other proceedings against other parties, dismissed expeditiously.”

BHP Capital did not return a request for comment from BI.

The suit also alleged that Farnsworth — who took credit in a July 2022 letter to Vinco employees for “raising hundreds of millions of dollars” for the company — and the Vinco directors Vanderbilt and Jesse Law had conflicts of interest and used the funding in the litigation for “self-dealing, mismanagement, corporate waste, breach of fiduciary duty, and fraud.”

Farnsworth denied these allegations in a statement through his lawyer, and Vanderbilt did not return BI’s multiple requests for comment. Law declined to comment for this story.

Investors aren’t the only ones circling. Three people told BI that the Federal Bureau of Investigation had been looking into Vinco and Farnsworth.

“Wall Street is really corrupt,” Vick said. “These guys just steal. They steal your money. And they are so arrogant that they need to be put in their place.”

Katherine Long contributed additional reporting.