A Musician Reportedly Made $10 Million in Royalties Through Fake Streams of AI-Generated Songs

Martina
23 September 2024, Monday

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An intriguing story was brought to light recently involving a North Carolina-based musician accused of earning millions of dollars in royalties through an AI-generated music scheme linked to fraudulent streaming activities. The individual is now facing criminal charges.

661,440 fake streams per day, nearly $10 million in royalties

On September 4, the U.S. Attorney’s Office for the Southern District of New York revealed the indictment as the “first criminal case involving artificially inflated music streaming.” Although AI-generated music is a relatively new technology disrupting the music industry, the beginning of the alleged music streaming fraud scheme dates back to 2017.

According to the 18-page indictment, the said scheme, spanning multiple streaming platforms, including Spotify, Apple Music, Amazon Music, and YouTube Music, resulted in a cumulative $10 million in royalties.

The legal document further reported that while the defendant, one Michael Smith, is a musician who composed his own songs, he didn’t have a large enough catalog to justify the royalties he earned.

Allegedly, what started as a relatively small-scale fraud grew rapidly, with Smith building a massive library of tracks. He is believed to have attempted to involve other musicians, offering to fraudulently generate or share royalties in exchange for fake streams of their music.

When this failed, Smith turned to AI, partnering with the head of an undisclosed AI company and a music promoter in 2018 to accelerate the scheme. In December 2018, he reportedly emailed his two partners, stressing that “TONS of songs” need to be produced quickly to “make this work around the anti-fraud policies these guys are all using now.”

Smith is said to have put a “labor-intensive” effort into creating “bot accounts” on the above-mentioned streaming platforms. He was allegedly collaborating with co-conspirators located both in the States and abroad, operating several multi-account Family plans and spreading streams out across a multitude of AI songs — so that he avoids raising any suspicion.

Between 2020 and 2023, the defendant allegedly “transferred $1.3 million in fraudulently obtained royalties to a bank account he controlled at a U.S.-based financial institution.” Later, he transferred the money to a Manhattan-based corporate debit card provider, which gained the impression that the made-up names (each tied to an email address and a streaming account) were employees of a firm owned by Smith.

In another email sent in 2017, Smith reportedly boasted of managing “52 cloud services accounts,” each with 20 bot accounts on the streaming platforms, capable of generating around 661,440 streams daily. He calculated that, with the average royalty per stream rate of one cent, this volume of fake streams could net him “daily royalties of $3,307.20, monthly royalties of $99,216, and annual royalties of $1,207,128.”

As the government stated, Smith “deceived” the streaming platforms by artificially maximizing the number of streams and thus receiving royalties that should’ve gone to legitimate musicians. The defendant also allegedly lied about the streaming and royalty abnormalities to his distributor for multiple years. The distributing company may now face substantial fines as, under new Spotify policies, distributors themselves have to compensate for fake plays.

The fraud eventually came to a halt when the Mechanical Licensing Collective (MLC) detected irregularities in Smith’s streaming data and suspended royalty payments to the defendant in March or April 2023.

“As the DOJ (Department of Justice) 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,” said MLC CEO Kris Ahrend in a statement.

What happens next? The defendant faces 20 years in prison

The future of Michael Smith doesn’t seem too bright. While creating and distributing AI-generated music is not illegal — as long as the songs do not infringe on protected material — streaming fraud is a serious crime.

Streaming fraud, or manipulation, involves activities that artificially inflate streaming numbers by generating so-called fake streams. Such fraud can be commonly achieved through various means, including hacking accounts, buying streams, creating fake profiles, and using bots.

You should be aware that even playing your music on repeat to boost streams or asking others to do so falls under fraudulent activity.

According to reports, Smith is facing up to 20 years in prison on each of three charges: wire fraud conspiracy, wire fraud, and money laundering conspiracy.

“The defendant’s alleged scheme played upon the integrity of the music industry by a concerted attempt to circumvent the streaming platforms’ policies,” stated FBI Acting Assistant Director Christie M. Curtis.

The US Attorney Damian Williams added: “As alleged, Michael Smith fraudulently streamed songs created with artificial intelligence billions of times in order to steal royalties. Through his brazen fraud scheme, Smith stole millions in royalties that should have been paid to musicians, songwriters, and other rights holders whose songs were legitimately streamed.”

The case’s timing is noteworthy as it comes only a month after MLC announced a collaboration with Beatdapp, a music streaming fraud detection company, which aims to “complement and enhance” the detection capabilities that MLC already has. Beatdapp’ previous research suggests that streaming fraud costs legitimate artists around $2 billion in royalties every year.

Smith's actions are part of a broader, may we say growing, trend in the music industry – yet they seem to be the most elaborate and sophisticated so far. Back in 2022, Swedish newspaper Dagens Nyheter uncovered and exposed an indie label called Firefly Entertainment, which generated streaming revenue using fictitious artist names.

Earlier this year, a man in Denmark was sentenced to 18 months in prison for data fraud and copyright infringement. The man allegedly used bots to amplify the stream count on the 689 tracks he uploaded to various streaming platforms.