Federal authorities have indicted Michael Smith, a 52-year-old music producer from North Carolina, for orchestrating a sophisticated $10 million fraud involving AI-generated music on streaming platforms. Since 2017, Smith has been accused of using artificial intelligence to produce vast music tracks, fraudulently boosting streaming numbers to siphon royalties.
Elaborate scheme unveiled
Investigators revealed that Smith collaborated with global music industry stakeholders, including the CEO of an unnamed AI music company. By creating “hundreds and thousands” of AI-generated tracks, Smith managed to amass millions in royalties. According to the Manhattan federal prosecutors, these activities led to charges against him, including three counts of wire fraud, conspiracy, and money laundering conspiracies.
The indictment details Smith’s use of bots and automated systems to generate fake music streams across platforms like Spotify, Apple Music, Amazon Music, and YouTube. He allegedly misled streaming services and rights collection societies such as the Mechanical Licensing Collective (MLC), effectively diverting funds that should have been paid to legitimate artists and songwriters.
Fraudulent operations and stakeholder reactions
According to the federal indictment, Smith entered a “Master Service Agreement” with the AI music company, which supplied him with up to 10,000 songs monthly. In return, Smith paid over $2,000, or 15% of the streaming revenue generated. This business model allowed him to claim ownership of the intellectual property rights of the songs produced under this agreement.
The scheme began to unravel as several stakeholders, including streaming platforms and the MLC, grew suspicious of Smith’s activities. By early 2023, the MLC had halted royalty payments to Smith, probing him for potential fraud. Despite inquiries, Smith and his team “repeatedly lied” about the nature of the music and the underlying fraud, as stated in the indictment.
Industry response and future safeguards
The exposure of Smith’s scheme has prompted a broader industry response. Kris Ahrend, CEO of the MLC, has lauded the Justice Department’s efforts to address misconduct. The MLC has also partnered with Beatdapp, a firm specializing in streaming fraud detection, to bolster its capabilities in identifying similar fraudulent activities in the future.
In light of these events, the FBI continues to prioritize the eradication of technological abuses in the music industry. Christie Curtis, acting assistant director at the FBI, emphasized the agency’s commitment to protecting the integrity of the music industry from technological manipulation.
As the case progresses, the music industry remains vigilant, enhancing measures to protect artists and ensure the rightful distribution of royalties. The partnership with Beatdapp represents a significant step towards safeguarding the economic interests of genuine artists against such fraudulent schemes.