An American man has pleaded guilty to conspiracy to commit wire fraud in relation to a multi-million dollar streaming fraud operation. Michael Smith now faces a prison sentence of up to five years and will hand over $8 million that he generated through his music streaming scam.
Criminal charges were brought against Smith back in September 2024 when the New York District Attorney alleged that Smith had engaged in both wire fraud and money laundering relating to a streaming fraud enterprise which prosecutors said involved “billions” of fraudulent streams of “hundreds of thousands” of AI-generated tracks.
At the time, Damian Williams, who was then US Attorney for the Southern District of New York, said that Smith operated a “brazen fraud scheme”, which “stole millions in royalties that should have been paid to musicians, songwriters and other rightsholders whose songs were legitimately streamed”.
Smith had employed the classic streaming fraud ruse, distributing large numbers of tracks to streaming services, and then using multiple subscriptions and bots to drive streams of the music. Because of the way a lot of streaming platforms operate, fraudsters can pull out more money in royalties than it costs them to buy subscriptions - until the point they are caught.
According to the indictment filed in 2024, not only did Smith create “thousands of accounts” on streaming platforms, but he also outsourced the creation of those accounts to “individuals living abroad” and “co-conspirators located in the United States”, urging them to “make up names and addresses” that made the “bot accounts” appear to be members of the same families.
He “typically paid for ‘family plans’ on the streaming platforms” as “the most economical way to purchase multiple accounts”. He then had “52 cloud services accounts” and each of those accounts managed 20 “bot accounts”, which would log into streaming platforms “using different VPNs”.
To bypass measures put in place to spot multiple payments using the same credit or debit card, the indictment claimed that Smith used a Manhattan-based financial services provider that was able to provide him with “large numbers of debit cards, typically corporate debit cards for employees of a company”.
He lied to that financial services provider, providing it with “dozens of fake names” that he claimed belonged to employees of his company.
Responding to this week’s guilty plea, current US Attorney for Southern District of New York, Jay Clayton, said, “Michael Smith generated thousands of fake songs using artificial intelligence and then streamed those fake songs billions of times, although the songs and listeners were fake, the millions of dollars Smith stole was real”.
And those were “millions of dollars in royalties that Smith diverted from real, deserving artists and rightsholders”, Clayton continued. “Smith’s brazen scheme is over, as he stands convicted of a federal crime for his AI-assisted fraud”.
Streaming fraud is a major problem for the music business, of course. When launching this year’s ‘Global Music Report’ earlier this week, IFPI CEO Victoria Oakley called on the wider industry to do everything it can to tackle that problem, in the part of the proceedings where in the past the record industry trade body would have mainly griped about piracy.
“Streaming fraud is theft, plain and simple”, Oakley declared. “The organisations with the data, scale and leverage to prevent this fraudulent activity, including streaming services, content aggregators and distributors, must take decisive action”.
There are various different kinds of streaming fraud. In theory the kind of fraud employed by Smith should be the easiest for streaming services to spot, given little known tracks by artists that don’t exist beyond the platforms start getting large numbers of streams, often from a relatively small number of accounts.
Which is why Smith went to such great lengths to cover the fraud up, employing many tracks, streaming accounts and debit cards, and involving lots of other people in the operation.
The music industry has pursued civil legal action against various companies that provide stream manipulation services to third parties in multiple countries, though there have been relatively few criminal proceedings against actual fraudsters. A man in Denmark was also convicted in 2024 for running a similar streaming fraud operation, six months before Smith was arrested.
The criminal case against Smith was pursued by the office of the Manhattan US Attorney, which also initially charged him with additional counts of fraud and money laundering. In a plea deal presented to the court this week, Smith only pleads guilty to the conspiracy to commit wire fraud charge.
What is not currently clear is whether Smith’s co-conspirators will also face charges - including one described by the FBI as the CEO of an AI company who helped Smith generate hundreds of thousands of tracks using AI tools - nor which distributor or distributors Smith was using to perpetrate his fraud.
According to Law360, Smith entered his guilty plea before US District Judge John G Koeltl, telling the judge, “I take full responsibility. I am truly sorry. I knew that it was illegal to lie to get money”. He will now be sentenced in July.