A North Carolina man was sentenced to more than a year in federal prison Tuesday for a fraudulent music streaming scheme that netted him $8 million, according to prosecutors.
In the first-ever federal criminal case of music streaming fraud, New York federal Judge John G. Koeltl sentenced Michael Smith of Cornelius to 18 months of imprisonment after he pleaded guilty to conspiracy to commit wire fraud, the U.S. Attorney's Office of the Southern District of New York announced. Smith also received two years of supervised release following his prison sentence and must pay back almost $8.1 million.
"Michael Smith exploited super intelligence technology to generate a fraud," U.S. Attorney Jamie McDonald said in a statement.
The U.S. Attorney's Office uses "super intelligence" rather than the more common phrase artificial intelligence.
"By flooding music streaming platforms with automated bots in the place of consumers, and fake songs in the place of creativity, Smith robbed millions in royalty payments from genuine artists and their fans," McDonald said in the statement. "This Office is committed to ensuring the integrity of all markets, and protecting the public from those who use super intelligence for fraud."
How the scheme worked
Smith, a 54-year-old musician with a small catalogue of his own songs, operated his scheme from 2017 to 2024, prosecutors said. To pull off the fraud, he created thousands of phony accounts using fraudulently obtained debit cards on music streaming platforms and used automated software, often called bots, to stream hundreds of thousands of AI-generated songs.
Creating the thousands of fake streaming service accounts took time, according to the indictment, and Smith enlisted people both in the United States and abroad to register accounts under fake names. He paid for the accounts with debit cards he obtained under false pretenses from a financial services company that usually provides payment cards to companies for their employees, according to the indictment.
About 2018, Smith started working with the CEO of an AI music company to create the hundreds of thousands of songs he uploaded, at one point receiving thousands of songs each week to upload onto streaming platforms, prosecutors said when they announced Smith's indictment two years ago.
Certain artificial intelligence programs can easily be prompted to create realistic songs, an issue that streaming services are reckoning with today.
In an email to alleged co-conspirators, Smith wrote, "We need to get a TON of songs fast to make this work around the anti-fraud policies these guys are all using now," according to the indictment.
Streaming services have fraud detectors in place. A spike in a single song could set off red flags for those detectors. To avoid detection by streaming services, Smith spread his automated streaming across thousands of his songs.
In essence, Smith used software to play songs he didn't write and pocketed the royalties for all those plays in which no one was listening. Federal prosecutors said Smith's bot accounts streamed his AI-generated songs billions of times, resulting in him making more than $8 million in royalties.
Federal prosecutors provided a comparison to show the scale of Smith's fraud. In April 2023, the entire catalogue of Taylor Swift, one of the most popular musicians in the world, received 9.3 million streams on YouTube Music family plans, prosecutors said. In that same month, Smith's AI-generated music received 81 million streams from family plans.
Prosecutors charged Smith with wire fraud, wire fraud conspiracy and money laundering in 2024, but he struck a deal with authorities to plead guilty to just the wire fraud conspiracy charge in March.
The case was prosecuted by the Complex Frauds and Cybercrime Unit at the U.S. Attorney's Office for the Southern District of New York. Assistant U.S. Attorneys Nicholas W. Chiuchiolo and Kevin Mead were the lead prosecutors.