AI Music Fraud: Man Pleads Guilty to $10M Streaming Royalty Scheme
A North Carolina man has pleaded guilty to a sophisticated scheme that defrauded music streaming platforms and artists out of millions in royalty payments. Michael Smith, 52, of Cornelius, North Carolina, admitted to conspiracy to commit wire fraud in a Modern York federal court on , according to a statement from U.S. Attorney Jay Clayton.
The case marks one of the first successful prosecutions related to AI-driven fraud within the music industry, an area increasingly plagued by artificially generated music designed to exploit streaming revenue models. The proliferation of this “fake music” threatens to undermine legitimate artists and copyright holders, diverting earnings from those who create original work.
“Michael Smith generated thousands of fake songs using artificial intelligence and then streamed those fake songs billions of times,” Clayton stated. “Although the songs and listeners were fake, the millions of dollars Smith stole was real. Millions of dollars in royalties that Smith diverted from real, deserving artists and rights holders. Smith’s brazen scheme is over, as he stands convicted of a federal crime for his AI-assisted fraud.”
Smith’s fraudulent activity spanned from to , during which he amassed as many as 661,440 streams daily. This generated annual royalties of $1,027,128, and ultimately resulted in the illicit accumulation of over $10 million in royalty payments. He was initially charged in .
The scheme involved not only the creation of AI-generated music but also the use of automated “bots” to artificially inflate listen counts on major streaming services like Spotify, Apple Music, and Amazon Music. This manipulation of streaming numbers triggered royalty payouts based on fabricated popularity, effectively stealing from artists whose music was genuinely streamed by real listeners.
Former U.S. Attorney Damian Williams previously described the scheme as a theft of “millions in royalties that should have been paid to musicians, songwriters, and other rights holders whose songs were legitimately streamed,” emphasizing the need for accountability.
The case has resonated within the music community, with observers noting the ingenuity – and ethical bankruptcy – of Smith’s approach. One X user, identified as Tuki, pointed out that Smith had effectively used “AI [to] make the music AND the audience,” generating $1.2 million annually from music that “no human ever actually listened to.” This highlights the core issue: the exploitation of a system designed to reward genuine engagement with music.
Under the terms of his plea agreement, Smith faces a maximum sentence of five years in prison and is required to forfeit $8,091,843.64. Sentencing is scheduled for .
This case underscores a growing challenge for the music industry, which had begun to recover from the disruptions caused by early digital piracy, such as the Napster era of the early 2000s. Now, the industry faces a new threat: AI-driven manipulation of streaming data. The current streaming model, where artists are compensated based on the number of streams their music receives, is particularly vulnerable to this type of fraud.
Musicians have long voiced concerns about the low royalty rates offered by streaming services, often resulting in minimal earnings except for a select few top artists. The diversion of funds through AI-generated music and inflated stream counts further exacerbates this problem, depriving legitimate artists and songwriters of deserved revenue.
The issue extends beyond financial losses. The influx of AI-generated content also raises concerns about the artistic integrity of streaming platforms. Spotify recently removed 75 million spam tracks in the past year, a direct response to the increasing volume of artificially created music.
Recent developments in the UK also highlight the broader debate surrounding AI and copyright. The UK government abandoned plans to allow AI companies to utilize copyrighted works without permission, a proposal met with strong opposition from artists including Elton John, Dua Lipa, and Paul McCartney. This decision reflects a growing recognition of the need to protect the rights of creators in the age of artificial intelligence.
Companies like Suno, which allows users to generate AI music, are at the forefront of this disruption. Suno boasts 2 million subscribers and reportedly generates 7 million songs daily – equivalent to an entire streaming catalog being produced every two weeks. While the quality of this AI-generated music is often described as “mass-produced” and lacking “artistic risk or depth,” its sheer volume poses a significant challenge to the music industry.
Suno’s chief executive, Paul Sinclair, has acknowledged the ethical complexities of the situation, stating, “Truly, every single day I’m conflicted… This s–t is complicated.” He expressed a desire to ensure a future where art and music can continue to thrive and artists can build sustainable careers.