Musician Accused in $10 Million Fraud Scheme: FBI Details Charges Against Michael Smith

Federal authorities have filed charges against a North Carolina musician for allegedly orchestrating a sophisticated fraud scheme involving artificially generated music and manipulated streaming numbers. The case, which marks the first criminal prosecution of its kind, has exposed vulnerabilities in the digital music ecosystem and raised questions about artificial intelligence and artistic integrity.

Michael Smith, a 52-year-old resident of Cornelius, North Carolina, was apprehended on Wednesday, September 10, 2024, following an extensive investigation by the Federal Bureau of Investigation (FBI). The United States Attorney’s Office for the Southern District of New York has leveled serious accusations against Smith, claiming he exploited advanced technology to defraud music streaming platforms and illicitly amass over $10 million in royalty payments, per a statement from the United States Attorney’s Office, Southern District of New York.

According to the unsealed indictment, Smith’s alleged fraudulent activities spanned from 2017 to early 2024, targeting major music streaming services, including Spotify, Amazon Music, Apple Music, and YouTube Music. The core of the scheme involved the creation of hundreds of thousands of artificially generated songs and the use of automated programs, colloquially known as “bots,” to stream these compositions billions of times.

U.S. Attorney Damian Williams explained the gravity of the situation, stating, “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,” according to the statement.

Prosecutors assert that Smith established thousands of accounts across various streaming platforms, which he then employed to continuously play the artificially generated tracks. At the peak of his activities, Smith purportedly estimated that these bot accounts could generate approximately 661,440 streams per day, potentially yielding annual royalties of $1,207,128.

To avoid detection, Smith allegedly distributed the automated streams across a vast array of songs. This strategy was designed to circumvent the anti-fraud mechanisms implemented by streaming platforms, which might flag suspicious activity if a single track received an abnormally high number of plays. By spreading the streams across tens of thousands of songs, each composition would only accumulate a modest number of plays, making the fraudulent activity more challenging to identify.

As the demand for content to fuel his scheme grew, Smith reportedly turned to artificial intelligence as a solution. The indictment alleges that around 2018, Smith began collaborating with the CEO of an AI music company and a music promoter to produce hundreds of thousands of AI-generated songs.

This partnership allegedly resulted in the rapid creation of a massive catalog of artificial tracks. In a 2019 email cited in the indictment, the AI company CEO allegedly wrote to Smith: “Keep in mind what we’re doing musically here… this is not ‘music,’ it’s ‘instant music’ ;).”

To maintain the illusion of legitimacy, Smith allegedly devised a system for naming the AI-generated tracks and their fictional creators. The indictment provides examples of these fabricated titles, including “Zygotic Lanie,” “Zyme Bedewing,” and “Zymo Phyte.” Similarly, imaginary artist names such as “Calliope Bloom,” “Callous Humane,” and “Calm Innovation” were created to lend an air of authenticity to the artificial catalog.

FBI Acting Assistant Director Christie M. Curtis emphasized the broader implications of the case, stating, per the outlet, “The defendant’s alleged scheme played upon the integrity of the music industry by a concerted attempt to circumvent the streaming platforms’ policies. The FBI remains dedicated to plucking out those who manipulate advanced technology to receive illicit profits and infringe on the genuine artistic talent of others.”

The unveiling of this case comes at a critical juncture for the music industry, which has been grappling with the increasing influence of artificial intelligence in creative processes. While many musicians have embraced AI tools for composition, recording, and production, there are growing concerns about the potential misuse of this technology and its impact on human creativity.

The Recording Industry Association of America’s 2024 Mid-Year Music Industry Revenue Report highlights the significant role of streaming in the current music landscape. Over the first half of 2024, streaming subscriptions in the United States increased by 3% to 99 million, with streaming services growing 4% at retail value to a record $7.3 billion. These figures reveal the financial stakes involved in streaming fraud and the potential for such schemes to divert substantial revenues from legitimate artists and rights holders.

The indictment also provides insight into the financial calculations allegedly made by Smith. In one email, he purportedly estimated that with an average royalty of half a cent per stream, his bot network could generate daily royalties of $3,307.20, translating to monthly earnings of $99,216 and annual revenues of $1,207,128. U.S. Attorney Williams noted the injustice inherent in such schemes, noting in the statement, “Smith stole millions in royalties that should have been paid to musicians, songwriters and other rights holders whose songs were legitimately streamed.”

Michael Smith now faces three charges: wire fraud conspiracy, wire fraud, and money laundering conspiracy. Each of these counts carries a maximum sentence of 20 years in imprisonment. As of the time of reporting, it remains unclear who will represent Smith in legal proceedings, and no statement has been issued on his behalf regarding the charges. The case is being prosecuted by the Complex Frauds and Cybercrime Unit of the U.S. Attorney’s Office, with Assistant U.S. Attorneys Nicholas W. Chiuchiolo and Kevin Mead at the helm.