North Carolina Musician Accused of $10M Streaming Fraud With AI-Generated Songs
Written by djfrosty on September 4, 2024
A North Carolina musician has been indicted by federal prosecutors over allegations that he used AI to help create “hundreds of thousands” of songs and then used the AI tracks to earn more than $10 million in fraudulent streaming royalty payments since 2017.
In a newly unsealed indictment, Manhattan federal prosecutors charged the musician, Michael Smith, 52, with three counts of wire fraud, wire fraud conspiracy and money laundering conspiracy. According to the indictment, Smith was aided by the CEO of an unnamed AI music company as well as other co-conspirators in the U.S. and around the world, and some of the millions he was paid were funneled back to the AI music company.
According to the indictment, the hundreds of thousands of AI songs Smith allegedly helped create were available on music streaming platforms like Spotify, Amazon Music, Apple Music and YouTube Music. It also claims Smith has made “false and misleading” statements to the streaming platforms, as well as collection societies including the Mechanical Licensing Collective (the MLC) and distributors, to “promote and conceal” his alleged fraud.
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Because of Smith’s alleged activities, he diverted over $1 million in streaming payments per year that “ultimately should have been paid to the songwriters and artists whose works were streamed legitimately by real consumers,” says the indictment.
The indictment also details exactly how Smith allegedly pulled off the scheme he’s accused of. First, it says he gathered thousands of email accounts, often in the names of fictitious identities, to create thousands of so-called “bot accounts” on the streaming platforms. At its peak, Smith’s operation allegedly had “as many as 10,000 active bot accounts” running; he also allegedly hired a number of co-conspirators in the U.S. and abroad to do the data entry work of signing up those accounts. “Make up names and addresses,” reads an email from Smith to an alleged co-conspirator dated May 11, 2017, that was included in the indictment.
To maximize income, the indictment states that Smith often paid for “family plans” on streaming platforms “typically using proceeds generated by his fraudulent scheme” because they are the “most economical way to purchase multiple accounts on streaming services.”
Smith then used cloud computing services and other means to cause the accounts to “continuously stream songs that he owned” and make it look legitimate. The indictment alleges that Smith knew he was in the wrong and used a number of methods to “conceal his fraudulent scheme,” ranging from fictitious email names and VPNs to instructing his co-conspirators to be “undetectable” in their efforts.
In emails sent in late 2018 and obtained by the government, Smith told co-conspirators to not be suspicious while running up tons of streams on the same song. “We need to get a TON of songs fast to make this work around the anti fraud policies these guys are all using now,” Smith wrote in the emails.
Indeed, there have been a number of measures taken up by the music business to try to curb this kind of fraudulent streaming activity in recent years. Anti-streaming fraud start-up Beatdapp, for example, has become an industry leader, hired by a number of top distributors, streaming services and labels to identify and prevent fraud. Additionally, severl independent DIY distributors including TuneCore, Distrokid and CD Baby have recently banded together to form “Music Fights Fraud,” a coalition that shares a database and other resources to prevent fraudsters from hopping from service to service to avoid detection.
Last year, Spotify and Deezer came out with revamped royalty systems that proposed new penalties for fraudulent activity. Still, it seems fraudsters study these new efforts and continue to evolve their efforts to evade detection.
The rise of quickly generated AI songs has been a major point of concern for streaming fraud experts because it allows bad actors to spread their false streaming activity over a larger number of songs and create more competition for streaming dollars. To date, AI songs are not paid out any differently from human-made songs on streaming platforms. A lawsuit filed by Sony Music, Warner Music Group and Universal Music Group against AI companies Suno and Udio in June summed up the industry’s fears well, warning that AI songs from these companies “saturate the market with machine-generated content that will directly compete with, cheapen and ultimately drown out the genuine sound recordings on which [the services were] built.”
Though Smith is said to be a musician himself with a small catalog of his own, the indictment states that he leaned on AI music to quickly amass a much larger catalog.
The indictment alleges that around 2018, “Smith began working with the Chief Executive Officer of an unnamed AI music company and a music promoter to create thousands of thousands of songs that Smith could then fraudulently stream.” Within months, the CEO of the AI company was allegedly providing Smith with “thousands of songs each week.” Eventually, Smith entered a “Master Services Agreement” with the AI company that supplied Smith with 1,000-10,000 songs per month, agreeing that Smith would have “full ownership of the intellectual property rights in the songs.” In turn, Smith would provide the AI company with metadata and the “greater of $2,000 or 15% of the streaming revenue” he generated from the AI songs.
“Keep in mind what we’re doing musically here… this is not ‘music,’ it’s ‘instant music’ ;)”, reads an email from the AI company’s CEO to Smith that was included in the indictment.
Over time, various players in the music business questioned Smith’s activities, including a streaming platform, a music distributor and the MLC. By March and April 2023, the MLC halted royalty payments to Smith and confronted him about his possible fraud. In response, Smith and his representatives “repeatedly lied” about the supposed fraud and AI-generated creations, says the indictment.
Christie M. Curtis, FBI acting assistant director, said of the indictment, “The defendant’s alleged scheme played upon the integrity of the music industry by a concerted attempt to circumvent the streaming platforms’ policies. The FBI remains dedicated to plucking out those who manipulate advanced technology to receive illicit profits and infringe on the genuine artistic talent of others.”
Kris Ahrend, CEO of the MLC, added, “Today’s DOJ indictment shines a light on the serious problem of streaming fraud for the music industry. As the DOJ recognized, The MLC identified and challenged the alleged misconduct, and withheld payment of the associated mechanical royalties, which further validates the importance of The MLC’s ongoing efforts to combat fraud and protect songwriters.”