Federal investigators have A North Carolina man has been indicted for allegedly earning more than $10 million in royalties from major streaming services using bot accounts and hundreds of thousands of AI-generated songs.

The case represents a milestone in the still-developing music streaming market. The U.S. Attorney’s Office for the Southern District of New York described it as the first criminal case involving artificially inflated fees for music streaming.

In the indictment, prosecutors allege that over the past seven years, North Carolina musician Michael Smith operated a complex scheme to manipulate music streaming to fraudulently profit from billions of streams from bot accounts. “At one point during the indicted period, Smith estimated that he was able to generate approximately 661,440 streams per day from the bot accounts, generating annual royalties of $1,207,128,” prosecutors said in the indictment.

Smith, 52, was charged with conspiracy to commit wire fraud, wire fraud and money laundering. If convicted, he faces a total of up to 60 years in prison.

“Through his brazen fraud scheme, Smith stole millions in royalties that should have been paid to musicians, songwriters and other rights holders whose songs were legally streamed,” said Damian Williams, U.S. Attorney for the Southern District of New York. “Thanks to the work of the FBI and prosecutors in this office, today is the time for Smith to face accountability.”

A lawyer for Smith declined to comment.

Both streaming fraud and AI music have been hot topics in the music industry in recent years (though the industry has also shown some cautious optimism about AI’s potential). Major labels have raised concerns about both issues for the same reason – that streaming fraud dilutes the royalty pool and takes revenue away from the actual artists who drive real music listening, while AI songs created at the click of a button can exacerbate these problems. Spotify introduced a new policy earlier this year that requires at least 1,000 streams before creators start earning revenue from songs.

The streaming payments are paid out on a “pro rata” model, where artists are paid in proportion to the share of the overall streaming pie for which they are responsible. As the indictment states, “the fraud deprives sound licenses of artists whose sound recordings were legally streamed by real consumers.”

Smith allegedly obtained thousands of email accounts through bulk account providers to sign up to streaming services. At one point, he had about 10,000 bot accounts on streaming services such as Spotify, Apple Music and Amazon Music. Since setting up thousands of accounts would be very labor-intensive, according to the indictment, Smith paid people in the US and abroad to help him. He allegedly bought family accounts so he could sign up his bots more cheaply. To make the payments appear more legitimate, he used a New York-based service that issues debit cards to company employees and gave the company false names that purported to be those of his employees.

According to the Justice Department, Smith spread his bot accounts’ streams across thousands of tracks rather than just a few to make it harder for streaming services to detect his behavior. In an email referenced in the indictment, he said, “To avoid getting in trouble with those in power, we need a LOT of content with a small number of streams.” (Smith could not immediately be reached for comment.)

At first, Smith allegedly tried using a publicist’s music catalog and offered to sell streams to artists to achieve the scale he needed for his venture. None of these strategies worked, and in 2018, the indictment alleges, he turned to artificial intelligence, which became the engine that enabled the streaming farm since he now had access to hundreds of thousands of songs. Smith allegedly worked with an unnamed CEO of an AI music company (referred to in the lawsuit only as co-conspirator three) as well as an unnamed music promoter to produce hundreds of thousands of AI songs.

In a 2019 email describing his plan, the CEO said, “What we’re doing here musically… this isn’t ‘music,’ it’s ‘instant music’ ;).” Smith and the CEO of AI Music had an agreement in which the CEO would deliver thousands of songs per month and Smith would give him a 15 percent share of the revenue.

Over the years, the AI ​​songs have become higher quality and harder to recognize, the indictment says. In a February email, Smith allegedly wrote that the music had “generated over 4 billion streams and $12 million in royalties since this date in 2019.”

As noted in the indictment, Smith repeatedly denied involvement in streaming fraud, despite being told by the music distribution company he hired that they had received complaints from multiple providers about streaming abuse and that the music would be removed. “This is absolutely false and insane, how can I object to this?” he wrote.

In March 2019, the suit alleges, Smith communicated directly with an unnamed streaming service and asked to put his music back online. “You have slandered me to my distributors, claiming I had fraudulent streams, but you have provided no evidence to support this claim, you have given me no chance to defend myself, and you have withheld money owed to me,” Smith wrote. “I am asking you to provide me with documentation of what you believe was artificially done.”

The charges related to another case from last year in which the Mechanical Licensing Collective had stopped payments to Smith over concerns of fraud. Again, Smith and his representative had allegedly lied to the MLC, claiming the music belonged to him and that “none of Mike’s works were computer-generated creations.”

When asked for comment, MLC CEO Kris Ahrend said the charges “shed light on the serious problem of streaming fraud in the music industry.” “As the Department of Justice acknowledged, MLC has identified and contested the alleged misconduct and withheld payment of related mechanical royalties, further underscoring the importance of MLC’s ongoing efforts to combat fraud and protect songwriters.”