A musician indicted by the US Government earlier this month over an alleged $10 million streaming fraud scam has pled not guilty.
As reported by Law360, Michael Smith, a 52-year-old resident of North Carolina, entered his plea in front of U.S. District Judge John Koeltl in Manhattan on Thursday “during a brief proceeding”.
According to court documents viewed by MBW, Judge John Koeltl issued an order on Thursday (September 18) setting Smith’s bail at $500,000.
As MBW reported earlier this month, the US Government charged Smith with three felony counts in connection with a “scheme to create hundreds of thousands of songs with artificial intelligence and use automated programs called ‘bots’ to stream the AI-generated songs billions of times”.
Smith is alleged to have fraudulently generated over $10 million in royalties through the scheme between 2017 and 2024.
He faces charges of wire fraud, wire fraud conspiracy and money laundering conspiracy, each of which carries a maximum of 20 years in prison.
The indictment, which was unsealed earlier this month, alleged that Smith used a number of measures to artificially boost streams, including fake email accounts and cloud services, and paying for Family plans on various streaming platforms.
At one point, according to the DOJ’s announcement, Smith estimated that he could use bots to generate about 661,440 streams per day, generating annual royalties of $1,207,128.
Last week, Spotify went on the record to say that its platform accounted for less than 1% of the $10 million generated in the landmark streaming fraud case.
“Spotify invests heavily in automated and manual reviews to prevent, detect, and mitigate the impact of artificial streaming on our platform,” a Spotify spokesperson told MBW in an email.
“In this case, it appears that our preventative measures worked and limited the royalties [Michael] Smith was able to generate from Spotify to approximately $60,000 of the $10,000,000 noted in the indictment.
“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 indictment against Smith described one unnamed streaming service that was able to detect Smith’s alleged fraudulent streaming activities and cut him off from payments as early as 2019.
That streaming service – referred to as “Streaming Platform-1” in the indictment – has been identified by news outlets as Spotify, based on the wording of its terms of service as quoted in the indictment.
“In or about March 2019, Streaming Platform-I informed a music distribution company (“Distribution Company-3”) that Michael Smith, the defendant, was working with, that Streaming Platform-I believed Smith had engaged in streaming fraud,” the indictment states.
“Shortly thereafter, [Smith] communicated directly with Streaming Platform-I to deny that he was engaged in streaming fraud and demand that Streaming Platform-I reinstate his music.”
“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.”
Christie M. Curtis, FBI Acting Assistant Director, speaking earlier this month
Tackling streaming fraud continues to be a key objective for the wider music business.
In Q1 2024, Spotify introduced a suite of new changes to its royalty model, one of which was a policy to financial penalize labels and distributors per track when “flagrant artificial streaming” is detected on their content, which the company said would act as a “deterrent” against artificial streaming.
As reported earlier this month, The Mechanical Licensing Collective identified irregularities in Smith’s streaming data and withheld the associated royalty payments. The development arrived a month after The MLC announced a collaboration with music streaming fraud detection company Beatdapp to “complement and enhance” the MLC’s existing streaming fraud detection capabilities. (Beatdapp also struck a strategic partnership with Universal Music Group in January.)
Beatdapp said in July that streaming fraud takes around $2 billion out of artists’ royalties per year.
Elsewhere, in June last year, France-born music streaming service Deezer set out a strategy to address fraudulent streaming activity on its platform.
Also in June last year, a number of music companies, ranging from distributors to other streaming platforms like Spotify and Amazon Music formed what they called “an unprecedented alliance” to launch ‘Music Fights Fraud’, a global task force “aimed at eradicating streaming fraud”.
The legal action brought by the US government against Michael Smith is the latest high-profile streaming fraud case to make headlines globally.
In March, a man in Denmark was sentenced to 18 months in prison, after he was found guilty of data fraud and copyright infringement. The man allegedly used bots to artificially inflate the stream count on 689 tracks he had uploaded to streaming platforms.
Speaking earlier this month, FBI Acting Assistant Director Christie M. Curtis said: “Michael Smith allegedly produced hundreds of thousands of songs with artificial intelligence and utilized automatic features to repeatedly stream the music to generate unlawful royalties to the tune of $10 million.
“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.”Music Business Worldwide
