Spotify Fraud | Matt Connarton Unleashed

0:00 Speaker 1: This is from a music businessworldwide dot com. I guess it was only a matter of time before something like this happened. Streaming fraud man who pocketed eight million dollars using hundreds of thousands of AI songs streamed billions of times by bots pleads guilty. So this guy set up a pretty elaborate scheme here, it says. The man at the center of what's been described as the first ever criminal prosecution for AI assisted streaming fraud in the US has pleaded guilty. Michael Smith of Cornelius, North Carolina, pleaded guilty on March nineteenth to one count of conspiracy to commit wirefraud before US District Judge John G. Coelty in the Southern District of New York.

0:48 Speaker 1: By the way, I feel like wirefraud is anything that isn't specific to you know, if it's not shoplifting or murder or something, it's wirefraud. You ever feel like that, Like just wiref is like this weird sort of catch all.

1:02 Speaker 2: Well, because it ended up morphing into the Internet.

1:05 Speaker 1: Right, anything involving anything electronic winds up becoming wirefraud.

1:09 Speaker 2: Yep.

1:11 Speaker 1: The charge carries a maximum sentence of five years in prison. Smith has also agreed to pay over eight million dollars in forfeiture. Wow, why does he actually still have it as just sitting in a bank account somewhere?

1:22 Speaker 2: I wonder like it.

1:23 Speaker 1: Smith is schedule to be sentenced on July twenty nine. US attorney Jay Clayton said, quote, Michael Smith generated thousands of fake songs using artificial intelligence and then streamed those fake songs billions of times. 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. Unquote. So the guy, so he figured out, I mean, it's creative and ambitious. He figured out how to creat all these AI songs and then create bots that would stream them, because obviously the more streams you get, the more money you get if you're the artist.

2:09 Speaker 2: That's the thing right there. It's not so much the creating the songs with AI as it is the creating the bots and getting them to play the songs over and over and over against so he could get money. Right, That's the that's the real stinky part. Yeah, And in that I do agree that it is taking money away from jenuine artists.

2:28 Speaker 1: Right, it says. Smith was first arrested in September twenty twenty four in what was the first criminal case of its kind in the US. Like I said, it was inevitable at that time. He was charged with three felony counts, wire fraud, wire fraud conspiracy, and money laundering conspiracy, each carrying a maximum sentence of twenty years in prison. As Music Bausiness Worldwide report it, Smith initially pleaded not guilty in front of the judge in September twenty twenty and was released on a half million dollars bail.

3:05 Speaker 1: And by the way, if any of those charges sound redundant, wire fraud, wire fraud conspiracy, money laundering conspiracy. You know when they when they charge you with these things, they they try to charge you with everything they possibly can, right, so that see what can stick? See what can stick? Or if there ends up in.

3:22 Speaker 2: Charge per instance, So if there's one instance and then there's another instance, then that's two charges.

3:28 Speaker 1: And if there ends up being an opportunity for some sort of a plea deal, you don't want to, you know, if you're the prosecutors you want to be able to negotiate from you know, you want to have as many things on the table as possible, right, So you know, if you in other words, if if the uh, if the defense wants to plead something down, well you got to have as many things available to plead down from. Right.

3:53 Speaker 2: Yep.

3:54 Speaker 1: So it says today's guilty plea to a single conspiracy count carrying a max. So they did. They did a plead down carrying a maximum of five years rather than the combined sixty years he previously faced. Represents a significant reduction in Smith's legal exposure. According to the charging documents and statements made in court, Smith created thousands of bought accounts on streaming platforms including Amazon Music, Apple Music, Spotify, and YouTube Music, and used software to cause those accounts to continuously stream songs that he owned.

4:29 Speaker 1: Smith spread his automated streams across thousands of songs to avoid triggering the platform's anti fraud detection systems. To obtain the volume of tracks needed for the scheme to work, Smith turned to AI, using it to generate hundreds of thousands of songs. Those songs were streamed by his bought accounts billions of times allowing him to fraudulently collect more than eight million dollars in royalties at the peak of his operation. According to the Department of Justice, Smith estimated that his bots could generate approximately six hundred sixty one thousand, four hundred and forty streams per day, yielding annual royalties of over one point two million.

5:15 Speaker 1: The Mechanical Licensing Collective the MLC, which distributes mechanical royalties from streaming in the US, played a key role in identifying the fraud scheme. In a statement following today's guilty plea, the MLC said, quote, Today's news highlights the serious threat that streaming fraud poses to the music industry and the important role the MLC plays and confronting it. We appreciate the Department of Justice's swift action, recognizing that the MLC identified the fraud early, challenged Smith and his representatives, and prevented the diversion of mechanical royalties away from rightful songwriters.

5:50 Speaker 1: The MLC will continue to invest in anomaly detection and fraud prevention to protect our members, and we will continue to collaborate with other industry organizations and law enforcement to protect all songwriting royalties unquote. The MLC had previously raised concerns about Smith's catalog, questioning how he could produce such a high volume of music so quickly. Smith and his representatives denied at the time that his works were AI generated.

6:21 Speaker 2: Well, of course, he's trying to game the system, and he did. His problem was he was too greedy. He didn't quit while it was his head. Now he's in jail.

6:30 Speaker 1: Yeah, well that's what happens. I mean true, you know, that's that's how people get caught. They get greedy.

6:35 Speaker 2: Yep, you know, thousands of songs though. Wow, Yeah, he definitely was was determined.

6:43 Speaker 1: Yeah, but it is.

6:45 Speaker 2: Crappy if that's happened. With that happening, that it does rip off for a artist, because you know, all he's doing is just game in the system with these bots that are playing the song. It's not human. Nobody's hearing it for real, it's just a computer program playing repeat.

7:01 Speaker 1: But also in doing that, you know everything that you do online leaves a digital footprint. It's it's like he had to know on some level eventually he was going to get caught unless he was just so blinded by his screen. That's something I'm always fascinated by when when I see stories like this is the psychology of it is very interesting to me because they must know on some level, whether they're admitting the admitting it to themselves or not. Maybe it's subconscious, but they must know they're going to get caught because everything that you do online, you know, it's.

7:38 Speaker 2: Like a bag. I think they think they're not going to get caught. Maybe they're going to get away with it because they figured something new out, or maybe they figured out how to use the computer a different way.

7:48 Speaker 1: Bank robberies always make me think about this too, Like whenever I see a.

7:51 Speaker 2: Story, ever hear one getting away.

7:53 Speaker 1: Well, that's the thing, whenever I see a story about a bank robbery, it's always to me, it's always like people still even attempt to rob banks. There's there's no chance you're gonna get away with it.

8:03 Speaker 2: When's the last time we heard of somebody actually getting away with it?

8:05 Speaker 1: It doesn't happen exactly. I mean, Bonnie and Clyde didn't get away with it in the year you know, twenty twenty six. With all the technology that we have, nobody's getting away with that. But where people still try, like somebody will still walk into a bank and just hand the teller a note and think that they're gonna that they're gonna get away with it.

8:23 Speaker 2: Why do you think there's so many Karen videos? What do you mean there's so many videos of people doing bad behaviors? Oh yeah, because people too bad behaviors fite the fact that you should be smart enough to know there's a camera everywhere.

8:38 Speaker 1: Well yeah, but I'm talking. I'm talking specifically about crime and just the things that people think they're going to get away with or you know.

8:43 Speaker 2: Same category in my book, or the or the cut.

8:46 Speaker 1: Well, you know, we open.

8:47 Speaker 2: The think they're gonna get away with it.

8:48 Speaker 1: Look what we opened the show with the cops rated Afroman's home. Yep, they didn't get away with it. There were cameras all throughout get away. Thought they were going to get away with that.

8:57 Speaker 2: Yeah, Then when they realized there were cameras, they cut the cameras. But now it was too late.

9:00 Speaker 1: Yep.

9:01 Speaker 2: Yeah, and that just made them look all the more guilty.

9:04 Speaker 1: The other question this raises in my mind is how many other people are doing this? You just haven't been caught.

9:09 Speaker 2: There's gonna be some kind of a program that allows people to create these bought accounts as well. Yeah, because on the other side is seeing that as a human.

9:20 Speaker 1: Yeah, well, this guy was obviously very very smart. I mean, he's probably got a genius till now. Yeah, but he's probably well, I mean, his judgment is one thing, but in terms of being able to pull this off, and he's probably got a genius level IQ to be able to figure out how to do all that and then get away with it for as long as he did.

9:35 Speaker 2: Create a thousands of Like, how do you create that many songs? How do you create that many accounts?

9:40 Speaker 1: Right?

9:40 Speaker 2: I can't imagine how many bought accounts he had, right to get them to play enough to get him that kind of money?

9:45 Speaker 1: Yeah, what was it?

9:46 Speaker 2: A mill a month or something like that?

9:50 Speaker 1: No, one year?

9:51 Speaker 2: Oh, a year?

9:51 Speaker 1: So he did this over the course of years.

9:55 Speaker 2: Be like, you got a million, go away right, right?

9:57 Speaker 1: Yeah, you do it for a year and then you get out. Yeah, take a million and go comfortably, take a million, invest it, and you know, live.

10:04 Speaker 2: Comfortably for the rest of your life. But not not not greed, grotesque greed. Ah, yes, do we not talk about that all the time.

10:12 Speaker 1: I don't want to give anybody the wrong idea though. We're not suggesting that it would have been okay if he had just done this for a year. And you know, no, we're not. We're not condoning it. No, we're not condoning crime. I mean, this is criminal activity, and it stinks.

10:23 Speaker 2: Because it takes a lot of attention away from real artists. And plus those illicit plays are going to show up. They're gonna try and make those songs go viral by their plays. Yeah, so it messes up a lot for a lot of real people and real artists.

10:40 Speaker 1: Yeah, so that's stinky. Absolutely, it was a little bit more to this. The case was prosecuted by the Complex Fraud and Cyber Crime Unit of the US Attorney's Office for the SDN Y. Assistant US attorneys Nicholas Chucciello and Kevin Mead led the prosecution. The original indictment named unnamed. Oh this is interesting, named unnamed co conspirators, including the CEO of an AI music company and a music promoter who helped Smith produce the AI generated tracks. The legal status their legal status has not yet been publicly disclosed.

11:19 Speaker 2: Oh.

11:19 Speaker 1: Because one of the things he was originally charged with was conspiracy. Smith's case.

11:26 Speaker 2: The p that there are other people involved.

11:27 Speaker 1: Yeah.

11:28 Speaker 2: Yeah.

11:29 Speaker 1: His case is the highest profile criminal prosecution for streaming fraud globally, but it's not the only one. In Denmark, a man was sentenced to eighteen months in prison in March twenty twenty four after being found guilty of data fraud and copyright infringement for using bots to inflate the stream count on six hundred and eighty nine tracks uploaded to platforms including Apple Music, Spotify, and U See Music. That sentence was subsequently increased by to twenty four months by the Western High Court of Denmark in February of twenty five after judges found evidence of more extensive fraudow than initially proven.

12:06 Speaker 1: So apparently in their system in Denmark you can.

12:09 Speaker 2: Double JEOPARDI they could just up your up your sentence. Wow.

12:15 Speaker 1: I think they can do that in the US too. It just doesn't happen for your sentence. I feel like I feel like there was a weird case charged you with something. There was something in the United States where something like that was done, and I think that this was a while ago. I'll have to look it up. I think there's something like that was done where a judge, a higher court judge overruled somebody else's Oh you know what I think it was. So a judge had reduced somebody's sentence, and then another judge overturned the reduction and restored the original sentence.

12:53 Speaker 1: It was something weird, and it was it was something no, not exactly but well it did effectively add or time. But there was something weird like that that happened in the US that made people really upset. Because it's in theory, so that's not supposed to happen.

13:08 Speaker 2: But