Streaming Fraud's First Big Sentencing Could Rewrite the Rules for Everyone Else

If you run a label, distribute for indie acts, or sit on a royalty accounting team, here is a sentence that should make you sit up: the harm you suffer from streaming fraud is so thinly spread across so many people that legally, it barely counts.

That is not a critic's take. It is the defense strategy in the first-ever criminal streaming fraud conviction, and if a federal judge accepts it, every future fraudster gets a template for beating the charge.

The man making the argument is Michael Smith, the 54-year-old producer who pleaded guilty in March to wire fraud conspiracy after generating thousands of AI songs and using bots to stream them billions of times. Billboard reported that Smith's lawyers filed a sentencing brief on Sept. 22 asking for no prison time at all, arguing the harm to any single artist was "insignificant."

Federal prosecutors want two years. Federal guidelines call for between 46 and 57 months. The Presentence Investigation Report, which judges lean on heavily, recommended 24 months, as Billboard noted. Smith wants probation.

The argument that should scare you

Here is the core of it, in his lawyers' words: "The effect each individual stream of one artist's song has on every other artist's share of total streams is not akin to a drop in a proverbial bucket, it is a drop in an ocean." They add that "no individual artist or songwriter suffered any perceptible harm from Mr. Smith's conduct."

Read it slowly, because it is clever. Smith isn't denying he cheated. His own filing concedes he used "increasingly deceptive tactics," lied when flagged, and "knew that he was cheating the system." What he is denying is that the cheating produced a legally cognizable victim.

The logic exploits exactly how streaming royalties work. The pro-rata pool is finite. Every fraudulent stream dilutes the per-stream value for everyone else. Spread across millions of rightsholders, no single artist can point to a specific dollar Smith took from them. Diffuse harm, the argument goes, is the same as no harm.

That is a direct attack on the economic logic the entire industry is using to justify its AI crackdown.

Why this is bigger than one sentencing

Think about what a win here would mean. Labels, distributors, and DSPs have spent the last two years building the case that pool dilution itself is the injury. It is the theory underneath fraud detection spending and underneath tightened distributor terms. If a court agrees that no identifiable victim means no real crime, that theory takes a body blow.

Reject it, and you get the opposite: a precedent that dilution of a shared pool is harm, full stop, even when you can't trace it to one plaintiff. That is the ruling the industry actually needs, because it converts a diffuse, hard-to-prosecute problem into a clean legal standard.

Either way, this sentencing writes the playbook for the next wave of cases. And there will be a next wave. By some estimates cited by Billboard, several percentage points of all streams are inauthentic, amounting to billions of monthly plays.

The uncomfortable part

Give Smith's lawyers this much: their second argument is harder to wave off. They claim bot-driven fraud is "indisputably rampant" in the business, "including by big labels and publishers," and that when Smith started in 2017 it wasn't clear his conduct was even illegal. Music Ally flagged that as "quite the claim," and it is unproven. But the framing lands because the royalty structure genuinely does incentivize gaming.

"He did not set out to commit a crime; he thought he found a way to game a corrupt system," his lawyers wrote, calling streaming fraud "a systemic problem rooted in the structure of the digital royalty system itself."

The systemic point is fair. It is also not a defense. The AI songs in this case were allegedly supplied by an unnamed AI company CEO after Smith promised to share the proceeds of his efforts. Billboard previously reported that hundreds of songs registered to Smith list Alex Mitchell, founder of AI firm Boomy, as co-writer. Mitchell has not been charged and told Billboard he was "shocked" and that Smith "consistently represented himself as legitimate."

U.S. Attorney Jay Clayton put the counterargument plainly when Smith pleaded: "Although the songs and listeners were fake, the millions of dollars Smith stole was real."

The prosecution files its own recommendation in the coming weeks. Watch what the judge says about harm, not just the number of months. Because the number decides Smith's fate, but the reasoning decides yours. A drop in the ocean is still theft if you built the ocean.

Sources

• Music Ally
• Billboard