Sarah Gilbert — MEI Fellow
On September 4, The U.S. Attorney’s Office for the Southern District of New York released a press statement announcing the arrest of Michael Smith, a 52-year-old musician, who now faces charges of orchestrating a $10 million AI music streaming fraud. The press statement included the unsealed indictment which included three counts of criminal charges against Smith including conspiracy to commit wire fraud, wire fraud, and money laundering conspiracy. The indictment also included the methodical way Smith went about collecting royalties using AI technology.
Streaming platforms, such as Spotify and Apple Music, are required to allocate a portion of their revenues to pay royalties to songwriters and artists. This is done through organizations like the Mechanical Licensing Collective (MLC) and Performance Rights Organizations (PROs). These royalties are distributed based on legitimate streaming data. However, Michael Smith allegedly used bots to artificially inflate streams, diverting royalties meant for legitimate artists. By making false claims to platforms and rights organizations, Smith fraudulently obtained millions in royalties.
Starting in 2017, Smith began creating “Bot Accounts” to stream songs he owned by purchasing bulk fake email addresses and opening accounts under different streaming services like Spotify and Apple Music using the fake emails. Smith had approximately 10,000 active Bot Accounts on the streaming platforms. He would pay for family plans on the streaming platforms and link the fake accounts to each other and use the money he earned in overall royalties to fund the premium family accounts. Smith would then use cloud computer services and coding functions he modified himself to stream his songs from every fake account simultaneously. In 2017, Smith could generate around 661,440 streams a day and based on his own estimation of an average royalty of one stream being half a cent, he could earn daily royalties of $3,307.20.
Streaming platforms like Spotify have regulations around the manipulation of streaming and the use of 3rd party services to increase streams, and regularly take music off the platform which they believe may be manipulating streams. Around 2018, Smith became weary as streaming platforms were becoming suspicious of his streaming methods as he was only boosting a small number of songs. The streaming platform informed Smith that they would remove the music he had on the platform as it violated the terms against fraudulent streaming. Smith figured that if he had more songs and fewer streams, overall, he would still be able to earn royalties and be less likely to be detected by the platforms.
Smith began working with a music promoter and an AI music company to generate thousands of songs he could generate royalties from using his streaming scheme. By 2019, the group had generated around 88 million total streams and Smith was earning $111,000 per month on royalties, which the producers and AI company were receiving a 10% cut from.
In 2023, The MLC stopped their royalty payments to Smith and confronted him about his potential fraudulent streams. Smith and his representative continued to i) deny that there was any manipulation of the streams, and ii) allege that the music uploaded was created without AI.
U.S. Attorney Damian Williams and FBI Acting Assistant Director Christie M. Curtis highlighted the case’s significance, noting the impact on legitimate musicians and rights holders. Smith’s fraud is estimated to have diverted millions in royalties that should have gone to authentic streams. The case comes amidst growing concerns in the music industry about the rise of artificial streaming and the use of technology to manipulate earnings.
The FBI and prosecutors are working to address the growing threat of streaming fraud, which has become an increasing issue for the music industry. Spotify, Deezer, and other platforms have implemented new measures, including penalties for labels and distributors found engaging in artificial streaming. Additionally, the MLC and fraud detection companies like Beatdapp are working to improve fraud detection systems and protect artists’ royalties.
Smith’s case is being prosecuted by the U.S. Attorney’s Office’s Complex Frauds and Cybercrime Unit, with FBI involvement. Although Smith has pleaded not guilty, the charges are severe, and if convicted, he could face significant prison time. As of October 1, Smith was released on a $500,000 bond and awaits trial.
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