AI Music Scam Nets $10M in Fraudulent Streaming Royalties

AI-generated music scam uncovered: A music producer has been arrested and charged with multiple felonies for allegedly defrauding streaming platforms of over $10 million in royalties using AI-generated songs.

Key details of the case:

• Michael Smith, 52, from Cornelius, North Carolina, is accused of creating thousands of bot accounts on major streaming platforms like Spotify, Amazon Music, and Apple Music
• The indictment alleges that Smith used these accounts to automatically stream AI-generated music he had uploaded, generating up to 661,440 streams per day
• Prosecutors claim Smith developed this scheme to circumvent the platforms’ fraud detection systems

Evolution of the alleged fraud:

• Smith reportedly began by fraudulently streaming music he owned
• As streaming platforms could detect likely fraud for excessively streamed tracks, Smith allegedly shifted to generating vast quantities of music
• According to the indictment, Smith wrote to co-conspirators about the need for “a TON of songs fast” to work around anti-fraud policies

Collaboration and methods:

• Smith is accused of working with an AI music company starting in 2018, as well as a music promoter, to generate hundreds of thousands of songs
• The indictment states that he purchased large quantities of email addresses to create fake accounts
• A VPN service was allegedly used to disguise that all accounts were controlled from Smith’s residence

Denials and confrontations:

• When confronted by the Mechanical Licensing Collective (MLC) in 2023, Smith reportedly denied engaging in streaming fraud
• The MLC had raised doubts about Smith’s ability to produce such large quantities of music so quickly without using AI
• A representative for Smith told the MLC that they had “clearly demonstrated that Mike Smith’s works are not AI-generated, but rather they are human-authored”
• In 2019, one of the streaming platforms accused Smith of fraud, which he also denied, stating, “I have never done anything to artificially inflate my streams”

Legal charges:

• Prosecutors contend that Smith’s denials are false
• Smith has been charged in the Southern District of New York with money laundering, wire fraud, and conspiracy to commit wire fraud

Broader implications for the music industry: This case highlights the growing challenges faced by streaming platforms in detecting and preventing fraud, particularly as AI technology becomes more sophisticated and accessible.

• The incident raises questions about the vulnerability of current royalty distribution systems to AI-generated content and bot-driven streaming
• It may prompt streaming platforms to invest in more advanced fraud detection technologies and stricter verification processes for uploaded content
• The case could potentially lead to discussions within the music industry about the need for new regulations or guidelines regarding AI-generated music and its monetization