A man in the US has been charged with wire fraud and money laundering in connection to an alleged streaming fraud enterprise which prosecutors say involved “billions” of fraudulent streams of “hundreds of thousands” of AI-generated tracks to generate more than $10 million in royalties.
The defendant, Michael Smith, operated a “brazen fraud scheme”, according to Damian Williams, US Attorney for the Southern District of New York, which “stole millions in royalties that should have been paid to musicians, songwriters and other rightsholders whose songs were legitimately streamed”.
Smith has been charged following an investigation by the FBI. Although the music industry has pursued legal action in multiple countries against companies that provide stream manipulation services, there have been relatively few criminal actions over streaming fraud to date. Although, earlier this year, an unnamed Danish music industry executive was sentenced to eighteen months in jail after being found guilty of running a streaming fraud operation.
What is notable about the allegations made against Smith is that, according to the indictment, not only did he create “thousands of accounts” on streaming platforms, but that he outsourced the creation 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. It is then alleged that he “typically paid for ‘family plans’ on the streaming platforms” as “the most economical way to purchase multiple accounts”.
To bypass measures put in place to spot multiple payments using the same credit or debit card, the indictment claims 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.
Those debit cards were funded with “more than $1.3 million in fraudulently obtained royalties” which he transferred from a bank account in the name of SMH Entertainment.
The sophistication of the operation is remarkable. In an email obtained by the FBI - which Smith apparently sent to himself - he outlined “a financial breakdown of how many streams he was generating each day and the corresponding royalty amounts”.
According to the indictment, he had “52 cloud services accounts” and each of those accounts managed 20 “bot accounts”, which would log into streaming platforms “using different VPNs”.
Each bot account would stream “around 636 songs each day” for a total of “approximately 661,440 streams per day”. Smith estimated that he’d receive an “average royalty stream” of “half of one cent” per play, which, says the indictment, could have earned him “daily royalties of $3307.20, monthly royalties of $99,261 and annual royalties of $1,207,128”.
By February 2024 “Smith boasted that his ‘existing music has generated at this point over 4 billion streams and $12 million in royalties since 2019’”.
In addition to setting up a large number of accounts on the digital platforms, Smith was equally prolific in creating music for those accounts to play. According to a statement from the US Attorney and FBI, Williams realised that - for his fraud to work - he needed to upload a massive amount of music, because if each track was getting too many streams from a relatively small number of accounts, the streaming services would spot the fraud and refuse to pay out.
If “a single song was streamed one billion times”, the prosecutors explain, “it would raise suspicions at the streaming platforms”. However, “a billion fake streams spread across tens of thousands of songs would be more difficult to detect”.
He started working with two co-conspirators to generate all that music, telling them in an email in December 2018, “We need to get a TON of songs fast to make this work around the anti-fraud policies these guys are all using now”.
Prosecutors allege that one of Smith’s co-conspirators was the CEO of an AI company and together they used AI tools to help generate hundreds of thousands of tracks. In another email to one of his co-conspirators in 2019, Smith wrote, “Keep in mind what we’re doing musically here... this is not ‘music’, it’s ‘instant music’”.
Smith made “numerous misrepresentations to the streaming platforms in furtherance of the fraud scheme”, prosecutors say, including using false names when setting up his accounts on the platforms, not to mention violating their terms against stream manipulation.
The specific charges Smith faces are wire fraud conspiracy, wire fraud and money laundering conspiracy, each of which carries a maximum prison sentence of 20 years.
