North Carolina Musician Arrested for $10M AI-Generated Music Fraud

In a groundbreaking case highlighting the intersection of technology and music industry fraud, Michael Smith, a 52-year-old musician from Cornelius, North Carolina, was apprehended yesterday for allegedly orchestrating a sophisticated scheme involving artificial intelligence (AI) to generate millions in illicit royalties.

Authorities claim that Smith utilized AI technology to produce hundreds of thousands of songs, which were then streamed billions of times, resulting in the misappropriation of over $10 million in royalty payments. This fraudulent activity reportedly occurred between 2017 and 2024, exploiting the royalty distribution systems of various streaming platforms.

U.S. Attorney Damian Williams emphasized the impact of this fraud on legitimate artists, stating that Smith's actions deprived musicians and songwriters of rightful royalties. The charges brought against Smith include fraud and conspiracy, carrying a potential maximum sentence of 60 years in imprisonment.

The scale of the alleged fraud is staggering. According to the indictment, Smith created thousands of streaming accounts, generating approximately 661,000 streams daily. This massive volume of artificial streams reportedly yielded annual royalties of $1.2 million. To put this in perspective, streaming platforms typically pay artists between $0.003 and $0.005 per stream, highlighting the enormous number of streams required to achieve such payouts.

The use of AI in music creation has been a topic of discussion in the industry for over a decade. In fact, the first AI-composed pop song was released in 2016, and by 2018, the first AI-generated album, "Hello World" by SKYGGE, was released on a major label. However, Smith's alleged activities represent a malicious application of this technology.

Christie M. Curtis, head of New York's FBI office, detailed how Smith allegedly exploited automated features to repeatedly stream the AI-generated music, thereby generating unlawful royalties. This case brings to light the ongoing challenge of "stream farming" in the music industry, a practice that has been a concern for years.

The indictment further reveals that Smith allegedly collaborated with the CEO of an AI music company and a music promoter starting in 2018 to create tens of thousands of songs. This strategy was reportedly employed to avoid detection by streaming platforms and music distribution companies.

Interestingly, when confronted by a music distribution company in 2018 about potential fraudulent activity, Smith vehemently denied any wrongdoing. However, authorities claim that in February 2024, Smith boasted in an email about generating over four billion streams and $12 million in royalties since 2019.

This case underscores the growing challenges faced by the music industry in the digital age. With the global music streaming market valued at $29.45 billion in 2021 and streaming accounting for 84% of the US music industry's $15.9 billion revenue in 2022, the potential for exploitation is significant. The Recording Industry Association of America (RIAA) has been actively combating streaming fraud since at least 2018, but this case demonstrates the evolving nature of such schemes.

As the investigation unfolds, this case is likely to spark further discussions about the use of AI in music creation, copyright issues, and the need for more robust fraud detection mechanisms in the streaming industry.