Just two months ago, the major labels of the music industry were up in arms about what was coming. Sony, Warner and Universal, among others, raised their voices, demanding financial compensation for damages done to the services Suno Ai and Udio. The newly emerged case in the United States is the result of a scenario regarding music and its relationship with artificial intelligence, which is far from reaching a meeting point. It is also a warning to “sailors”.

The producer that no one knows. Michael Smith, 52, of Cornelius, North Carolina, says he’s a musician and record producer. From an artistic standpoint, he had only a small catalog of music and quickly earned more than $10 million in royalties from streaming services.

At some point, industry alarm bells started ringing and reached the ears of the FBI. The FBI launched an investigation to verify that Smith had obtained the money legally. What they found was one of the biggest scams in the music industry and streaming services like Spotify. The man could face 60 years in prison.

The fraud was revealed. It happened on Wednesday of this week. The FBI arrested him, charging him with multiple felonies for allegedly defrauding him of more than $10 million in royalties. How it worked: He used hundreds of thousands of songs generated by artificial intelligence.

Yes, apparently, and according to the indictment, Smith created thousands of bot accounts on platforms like Spotify, Amazon Music, and Apple Music. He then used the accounts to automatically stream AI-generated music that he placed on the platforms; the entire elaborate scheme resulted in up to 661,440 streams per day—an avalanche that generated $1.2 million in annual royalties.

Artists’ money. The indictment stated that “these royalties are drawn from a royalty fund that streaming platforms are required to set aside for artists who release sound recordings containing musical compositions,” as explained in Manhattan federal court.

How did the alarm not go off before? When the case came to light, it was something of a mystery. According to federal prosecutor Damian Williams, Smith’s scams of musicians and songwriters began in 2017 and continued until just a few months ago, when he was able to claim royalties from artists. In other words, he had been gaming the system for at least seven years without raising any alarms.

Plan. According to Christie M. Curtis, head of the FBI’s New York office, Smith “used automated features to repeatedly stream music and obtain illegal royalties.” But before that, the man allegedly orchestrated a scheme to bypass the platforms’ fraud detection systems. Prosecutors allege he initially fraudulently streamed music he owned in 2017, but streaming platforms can detect potential fraud if a particular piece of music has been streamed a billion times.

After Smith learned about this, he changed his plan. What he did? He continued to produce as much music as possible over the next year, according to the indictment. “We need to get a ton of songs together quickly so that we can do this under the anti-fraud policies that all these guys are using right now,” the indictment says, in a private message sent to two friends by the defendant.

Accusations. The case, which is pioneering because of the scope of the scam, doesn’t just target Smith. The chief executive of the AI ​​music company he launched in 2018 and a music promoter who helped produce hundreds of thousands of songs are also being investigated. Smith is also understood to have purchased large amounts of email addresses to create fake accounts, and used a VPN service to “hide” the fact that he was monitoring them all from home.

The prosecution also revealed when progress in the case fell apart. This happened when the man denied any involvement in the streaming scam and confronted the Mechanical Licensing Collective, the organization that distributes streaming royalties. Shortly after, the MLC raised questions about how it was able to produce so much music so quickly in 2023 without using AI in the equation.

Notice to sailors. As we said at the beginning, the digital music industry has a long way to go before it reaches a meeting point with artificial intelligence tools. Smith’s case is a sign of the times, but it will certainly not be the only one.

Smith was charged in New York with money laundering, wire fraud and conspiracy to commit wire fraud, and according to the MLC, “this case sheds light on the serious issue of streaming fraud in the music industry.”

Image | PXHere, RawPixel

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