AI Music Fraud Indictment Brings Scrutiny to Streaming Inflation

A first-of-its-kind federal indictment accusing a man of making over $10 million by falsely boosting streaming numbers for AI-generated music demonstrates another threat to artists and a need for fraud-prevention vigilance by platforms.

Michael Smith used bots to keep “listening” to scores of musical tracks created using generative artificial intelligence on platforms such as Spotify and Apple Music, according to the Justice Department. The scheme, according to the DOJ, gamed a huge piece of the music industry’s revenue model: ringing up royalty payments by the number of streams.

Royalty-chasing by inflating streaming numbers isn’t new, but the use of AI was a “critical ingredient” for Smith’s seven-year-long scheme, said music and intellectual property law professor Peter Nicolas from the University of Washington School of Law.

“Otherwise, it would have just been very clunky to commit the fraud on this level,” Nicolas said. “Having the thousands of songs was key to his ability to avoid detection for a while.”

AI has brought a tremendous scaling power to content creation, and Nicolas said Smith’s indictment is a “warning” for streaming platforms to fortify their fraud-prevention measures against new capabilities. Although a few streamers and music distributors flagged Smith’s activity on their platforms as early as 2018, according to the indictment, he continued the activity for six years before his arrest.

The government’s interest in prosecuting Smith, however, is a sign that streaming fraud is now on the Justice Department’s radar, and the indictment—which was touted as the first criminal case involving artificially-inflated streams—could be viewed as a strong deterrent, according to Joseph Fishman, an IP law professor at Vanderbilt University Law School.

“Up until this point, the most people in these schemes had to worry about was probably terms of service violations,” Fishman said. “Now, they have to worry about being charged with wire fraud. It doesn’t take many prosecutions like this to get people’s attention.”

Gaming the System

Smith’s scheme dates back to 2017, when he emailed himself a detailed breakdown of how much money he could make from faking music streams, according to the indictment made public Sept. 4 in the US District Court for the Southern District of New York.

Smith bought thousands of fake emails to register fake accounts across different streaming platforms, the indictment said. He set up a corporate debit card account to buy subscriptions and ran pieces of code to automatically stream music from those accounts across several virtual computers, according to the indictment.

It wasn’t a one-man operation—Smith employed people in the US and overseas to register the fake accounts, the filing said, adding that he at times had as many as 10,000 active bot accounts.

While he initially played songs from a music publicist’s catalog or tried to sell his fake listenership as a service to other artists, neither allowed him to stream a large volume of songs, the DOJ said.

Enter: AI

Smith began working with a CEO of an AI music company in 2018, according to the indictment, generating thousands of songs to upload to streaming platforms. The AI songs had names like “Zygopteraceae” and were posted under artist names such as “Calypso Xored.”

“Once you see what was done, it’s like, ‘Oh, of course someone would put this technology together with that technology.’ It’s not that ingenious,” said Peter DiCola, IP law professor at Northwestern University’s Pritzker School of Law. “But what we’re learning is that the system had nothing in place to stop it. I mean, it took years to catch him.”

Spotify’s investment in fraud prevention measures “worked and limited the royalties Smith was able to generate” from the audio streaming platform to “approximately $60,000 of the $10,000,000 noted in the indictment,” a spokesperson said in an emailed statement.

“As Spotify typically accounts for around 50% of streamshare, this shows how effective we are at limiting the impact of artificial streaming on our platform,” the spokesperson said.

Apple Music, Amazon Music, and YouTube Music didn’t immediately respond to requests for comment.

The DOJ brought three counts of action: conspiracy to commit wire fraud, wire fraud, and money laundering. Smith’s attorneys didn’t immediately respond to requests for comment.

“To create a work doesn’t mean you’ve done anything illegal—that’s not the point here,” said Andrea Perez, art and entertainment lawyer at Carrington, Coleman, Sloman & Blumenthal LLP. “The point here is that he was gaming the system to increase revenue.”

An agreement detailed in the indictment said Smith owned the intellectual property rights to the AI-generated music. But the US Copyright Office issued guidance in March 2023 that humans can’t claim ownership over works where the AI technology determines the expressive elements of its output.

“People are just lying anyway,” said Bill Hochberg, a media and music lawyer from Raines Feldman Littrell LLP. “They’re submitting either to the Copyright Office or to these platforms like Spotify and they’re pretending that they created it.”

AI-generated music has already struck a nerve of the music industry, with record labels including UMG Recordings bringing copyright infringement complaints against companies like Suno and Udio. This indictment “adds juice” to the arguments, Hochberg said.

“It’s showing that there could be massive damage that wasn’t even anticipated, wasn’t even brought up in those cases,” he said.

Streaming Fraud

The case combines two anxieties for artists and rightsholders, according to Fishman: whether AI-generated music will dilute the royalty pool, and whether people are already defrauding the system using bots to inflate streaming numbers.

Artists make money through a formula that often factors in the streaming platforms’ revenue and the number of streams. Spotify’s revenue model, for example, depends on streamshares: the more listeners stream an artist’s song, the larger slice of the revenue pie they get. Smith’s artificially bloated listenership ended up shrinking the share of royalties owed to another artist because their streams now count for a smaller percentage of the total revenue, the indictment said.

Some music distributors and streaming platforms caught wind of Smith’s activities a year or two after he started. In 2018, an unnamed music distribution company removed Smith’s music from its stores and in 2019 a streaming platform told a separate music distribution company it believed Smith was committing fraud. Last year, the Mechanical Licensing Collective, which distributes royalties for songwriters, began withholding royalty payments to Smith and confronted him about his activities.

A source close to Spotify confirmed it was the streaming platform that detected the fraud in 2019.

Smith repeatedly denied any wrongdoing to the streaming platforms and music distributors, according to the indictment. The Justice Department declined to comment.

The “DOJ indictment shines a light on the serious problem of streaming fraud for the music industry,” Kris Ahrend, CEO of The MLC, said in an emailed statement.