North Carolina Producer Charged in $10 Million AI-Generated Music Streaming Fraud Scheme

TLDR:

• Michael Smith charged with wire fraud and money laundering for $10M streaming royalty scheme
• Used AI to generate hundreds of thousands of songs and bots to fake streams
• Scheme ran from 2017-2024, generating up to 661,440 streams per day
• Worked with AI music company and promoter to create mass quantities of AI songs
• Denied wrongdoing when confronted by licensing collective and streaming platforms

A 52-year-old music producer from Cornelius, North Carolina, Michael Smith, has been charged with wire fraud conspiracy, wire fraud, and money laundering conspiracy in connection with an elaborate scheme to defraud music streaming platforms.

The U.S. Attorney’s Office for the Southern District of New York announced the charges on Wednesday, alleging that Smith used artificial intelligence (AI) to generate songs and automated bots to artificially inflate listener numbers, resulting in over $10 million in fraudulent royalty payments between 2017 and 2024.

According to the indictment, Smith’s operation involved creating hundreds of thousands of computer-generated tracks and using thousands of fake accounts and bots to stream these songs.

The scheme allegedly generated approximately 661,440 streams per day, translating to about $1.2 million in annual royalties. U.S. Attorney Damian Williams stated that Smith “stole millions in royalties that should have been paid to musicians, songwriters, and other rights holders whose songs were legitimately streamed.”

The investigation revealed that Smith began collaborating with the CEO of an AI music company and a music promoter in 2018 to expand his fraudulent activities.

They referred to their AI-generated audio as “instant music” in email communications cited by the Department of Justice. Smith allegedly instructed his accomplices that they needed to “get a ton of songs fast to make this work around the anti-fraud policies” implemented by streaming platforms.

To avoid detection, Smith’s strategy evolved from streaming music he owned to generating vast quantities of AI-created songs.

He purchased large numbers of email addresses to create fake accounts and used VPN services to mask the fact that he was controlling these accounts from his residence.

The indictment highlights the absurdity of some of Smith’s AI-generated content, with song titles like “Zygophyllaceae” and “Zymotechnical” attributed to fictional artists such as “Calypso Xored” and “Camel Edible.”

Despite their nonsensical nature, these tracks accumulated a significant number of streams through Smith’s bot network.

When confronted by streaming platforms and the Mechanical Licensing Collective (MLC) about potential fraud, Smith repeatedly denied any wrongdoing.

In 2023, when the MLC questioned how he could produce so much music so quickly without using AI, a representative for Smith claimed, “We have clearly demonstrated that Mike Smith’s works are not AI-generated, but rather they are human-authored.”

However, the indictment cites a February 2024 email in which Smith allegedly boasted that his music “has generated at this point over 4 billion streams and $12 million in royalties since 2019.”

Each of the charges against Smith carries a maximum sentence of 20 years in prison.

The MLC has responded to the indictment, stating that it “shines a light on the serious problem of streaming fraud for the music industry.” Kris Ahrend, CEO of the MLC, emphasized the importance of their ongoing efforts to combat fraud and protect songwriters.