AI-Fueled Streaming Fraud: North Carolina Man Pleads Guilty to $8 Million Scheme
A North Carolina man has pleaded guilty to orchestrating a large-scale fraud scheme that used artificial intelligence and automated streaming to generate millions in music royalties. Michael Smith, 54, of Cornelius, North Carolina, entered a guilty plea in federal court to one count of conspiracy to commit wire fraud before U.S. District Judge John G. Koeltl in the Southern District of New York.
Under the terms of the plea agreement, Smith faces a maximum sentence of five years in prison and has agreed to forfeit $8,091,843.64, the amount prosecutors say he obtained through the scheme. Sentencing is scheduled for July 29, 2026.
How the Scheme Worked
According to federal prosecutors, Smith created hundreds of thousands of songs using AI-generated tools and then used a network of automated accounts to stream those tracks at scale. The streams were designed to mimic real user behavior across major platforms, including Amazon Music, Apple Music, Spotify, and YouTube Music.
Authorities say Smith relied on more than 1,000 accounts, each programmed to stream hundreds of his songs daily. By distributing activity across multiple accounts, the operation avoided triggering fraud detection systems typically used by streaming services. Over time, the system generated billions of streams, resulting in royalty payments that exceeded $8 million.
Exploiting Streaming Payout Mechanics
Prosecutors described the operation as a deliberate attempt to exploit the mechanics of streaming payouts, which reward plays regardless of whether the listener is human or automated, provided the activity appears legitimate. U.S. Attorney Jay Clayton emphasized that while the songs and listeners were fake, the money stolen was real, diverting royalties from legitimate artists and rights holders.
Additional Penalties and Ongoing Investigations
Smith’s plea agreement also outlines additional potential penalties. In addition to prison time and forfeiture, he could face up to three years of supervised release and a fine of up to $250,000. The Department of Justice indicated it would not pursue further charges related to the fraud itself, but noted that possible tax violations between 2017 and 2024 remain under review.
Details of the operation suggest a highly structured system designed for long-term revenue generation. Estimates cited in the investigation indicate the network could generate more than 600,000 streams per day, translating into daily earnings of several thousand dollars.
Industry Concerns and Future Safeguards
The case highlights ongoing concerns within the music industry about the vulnerability of streaming platforms to manipulation. Because royalties are often distributed based on total stream counts, artificially inflating plays can redirect funds away from legitimate creators. Industry groups and rights holders have increasingly called for tighter safeguards, particularly as AI tools make it easier to produce large volumes of content quickly.
Smith remains in custody pending sentencing later this summer.
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