There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.

Caleb Newquist: There's a relatively new conspiracy theory called the Dead Internet that's been bouncing around the past few years. It says that the vast majority of what's produced online the accounts, the posts, the likes, the followers, the streams isn't the result of real human interaction anymore. Rather, it's bots talking to bots, talking to bots, talking to bots, talking to bots. In other words, the information superhighway is filled with self-driving cars that have origins [00:00:30] and destinations, but no passengers. It's always rush hour, but no one's actually going anywhere. The image of that is kind of sad, but also insane and dystopic, like a concert where there's just a computer on stage playing songs to an audience of computers. But what if it even got weirder than that? If AI creates a song, streams it on Spotify, and then thousands upon thousands of bots listen to it. Is [00:01:00] that music? And what if those songs somehow earn royalties and then are paid to the person who created them? Does that make it music? Maybe. It might also be fraud.

Earmark CPE: Are you an accountant with a continuing education requirement? You can earn free Nasba approved CPE for listening to this episode. Just visit earmarked app in your web browser. Take a short quiz and get your certificate.

Caleb Newquist: Hello [00:01:30] and welcome to My Fraud, a true crime podcast where the relationship status usually ends with incarcerated. I'm Caleb Newquist. How's it going? Thanks for tuning in. Uh, God knows you could be listening to many, many other things. Let's do a couple reviews, shall we? These both come from Apple Podcasts. First is Brooke Brook three underscore 2327. They [00:02:00] gave it five stars. And right. Great podcast. Interesting and informative even for a mere true crime dabbler. Glad to know that were I to change professions and become a CPA, that my homework would be fun. Yeah, that is kind of reassuring, isn't it? Um, not all professions have fun homework. Accounting is one of them. But yeah, if you listen to podcasts, maybe that makes it slightly better. Um, I don't know if you want to change professions. Do you want [00:02:30] to? This is I this is my bias. I understand that because I left it. But don't rush into it just because you think you know job security. Or I can listen to podcasts to get the CPE, you know, think hard, think long and hard about whether you want to be an accountant. Okay. Please trust me. All right. Up next, uh. Mu. Mu. Mu. Mu. Mu. Mu. Mu. Mu. Mu. Mu. [00:03:00] Mu. Mu. Mu. Mu. Mu. That was it. Review. Uh. They titled their comment Welp, and they gave us one star. Here it is. Thanks for the input on your July 16th, 2025 podcast that Twitter is full of white supremacists. Hope your audience base does better in the future.

Caleb Newquist: You know, this is a very strange comment. Um, first of all, Twitter slash X or x, I think I'm ready [00:03:30] to just finally call it x, I don't know. Anyway, it is full of white supremacists. I'm just stating a fact. It's like saying, um, it's like saying LinkedIn is full of people doing very cheap, very bad imitations of LeBron James. You know what I mean? Instead of taking their talents to South Beach, they're taking their talents to JPMorgan Chase to be a senior financial analyst. You know, I don't know. I hate LinkedIn so much anyway. Also, I am not saying [00:04:00] that X is exclusively filled with white supremacists. There's just a lot of them. And we know this is true because Elon Musk let them in. He's their fearless leader. He let them in. There's a there's a link in the show notes that I found. And it's just like I'm not exaggerating. So anyway, finally, I don't really know what to make of the comment. Are you saying you hope we get more white supremacists in our audience? If so. [00:04:30] Nah. No thanks. But thank you to everyone who writes reviews and emails. Yeah, even the one star ones. They're fun sometimes. All right. Please rate the show on Apple, Spotify or wherever you listen. And if you write a review, like I said, even a one star one. But we prefer the five. We do prefer the five stars. Zach is very annoyed with, you know, this, this [00:05:00] last one.

Caleb Newquist: So help him out. All right. I just might read it out loud. Okay. On this microphone. Also, if your firm or company or conference or event needs a live or virtual presentation on fraud or ethics, that would be that would be something I could talk to you about. All right. Email me fraud at your mark cpe.com to get more information on pricing and availability. All right. Great. Anyway, [00:05:30] that's enough business time for some fraud. And in this episode we have two cases of fraud. Google and Facebook are two of the most successful businesses in history. Today, they're technically known as Alphabet and Meta, and as of this recording they have market capitalizations of 3.2 trillion and 1.9 trillion, [00:06:00] respectively. Google had revenue of 350 billion and net income of 100 billion for its fiscal year ended December 31st, 2024, while Facebook had 160 billion in revenue and 62 billion in net income for the same period. That massive success of these two companies. Well, the massive success of these two companies have made their founders very wealthy. [00:06:30] Like wealth that you can't even, you know, imagine. I mean, people think that they can imagine it, but you really can't. You're like, oh, well, I'll just have a fleet of yachts. It's like, yes, you may have a fleet of yachts, but you will still have far, far more money than you could ever spend. Uh, Google founders Sergey Brin and Larry Page have net worths of 212 billion and 227 billion, while Mark Zuckerberg, founder [00:07:00] of the Facebook, is like 260 billion.

Caleb Newquist: Those are from the Bloomberg Billionaires Index, which is a very strange thing, but it exists. And, uh, yeah, that's where that data comes from anyway. I don't know these guys from Adam, but Larry Page and Sergey Brin, they became billionaires when they were 31. Mark Zuckerberg became a billionaire when he was 23. And when you're that rich that young people kind of they [00:07:30] deify you or at the very least, you know, they just tell you you're a genius. Especially, you know, especially in America. And, you know, I'll paraphrase Scott Galloway, but if you tell that person, particularly a man under 40 years of age that there Jesus Christ. They're kind of inclined to believe you. Also, much like JC, these guys attract followers. Devoted followers is probably [00:08:00] the best way to say it. And when you have devoted followers, you probably get used to that too. And so why not build an entire company of followers? So you're building a following. And in the American corporate world, that's called culture and culture. Many business experts will tell you, is a very good thing. Culture eats strategy for breakfast. The old business saying goes. And so Google and Facebook have been notorious over the years for [00:08:30] being very selective in their hiring, rejecting the vast majority of applicants. These places only have seats for the capital B best, capital B brightest, but also, you know, fealty to their fearless leaders, both Google and Facebook, through their parent companies, are controlled by their founders through equity structures that give them the majority of the voting power without having to own the majority of the shares.

Caleb Newquist: Now, my point is that these are vast [00:09:00] companies that employ tens of thousands of people, and I'm sure if they could, these founders would control every facet of these businesses, but they simply can't. So they have to delegate responsibility to people to run all the various functions that a multinational, multibillion multitrillion, now dollar company requires. And sometimes those people make mistakes. In [00:09:30] March 2017, the US attorney for the Southern District of New York announced the indictment of Evaldas Matsoukas. I hope I'm saying that right. Anyway. That's the best. That's the best I got. Evaldas is a Lithuanian national who was accused, along with Coconspirators, of impersonating a Taiwan based hardware manufacturer called Quanta Computer. Quanta manufactures all kinds of computing hardware, everything from laptops to [00:10:00] servers to smartwatches. In 2013, Remiszewski set up a company in Latvia, opened bank accounts in Latvia and Cyprus, all under the name Quanta Computer. He used underlings to call Google and Facebook customer service numbers to learn as much as they could about these companies details, like names of key employees and their contact information, and they used phishing emails to access the company's email systems. Eventually, [00:10:30] all of this correspondence, along with a maze of phony invoices, contracts, letters, corporate stamps and what not created enough confusion. That one of Eovaldi's callers was able to trick Google into changing the bank account they had on file for Quanta Computer.

Caleb Newquist: Google sent $23 million to a bank account controlled by Ramanauskas [00:11:00] in 2013. They use the same tactics to fool Facebook, and Facebook sent $98 million to bank accounts he controlled in 2015. And because these companies make so much money, the amount stolen went virtually unnoticed. 23,000,098 million aren't even rounding errors on the amount of revenue for Google and Facebook. It's less than pocket change. It's less [00:11:30] than the change in their couch cushions. And in each case, once money hit the account, Remiszewski would then funnel it to bank accounts he controlled in Latvia, Cyprus, Slovakia, Lithuania, Hungary and Hong Kong. He used all that forged documentation to help push the transactions through intermediary banks, including some that were in the United States. But eventually [00:12:00] someone at Google caught on. They conducted an investigation which led them to Rimosso, which led Google to request his arrest by Lithuanian authorities, which they did in March 2017. He was extradited to the US in August of that year to face the charges. In the indictment, one count of wire fraud and two counts of money laundering. He pleaded guilty in March 2019 to the wire fraud charge, and was sentenced to five years in prison [00:12:30] in December that same year. Meanwhile, Google and Facebook, by the way, they got their money back. All right. For this next story, I'm bringing in my producer, Zac Frank. Hello, Zac.

Zach Frank: How's it going?

Caleb Newquist: Good. Now, I've brought Zac specifically on for this story because Zac is a musician and a composer, and he comes from a musical family and not hobbyists, [00:13:00] right? Zac. Like musicians that have that make a living being musicians?

Zach Frank: Yes, definitely.

Caleb Newquist: Yeah. And, um, so why don't you talk about I think, I think it's interesting because, like, most people don't make a living making music, but, like, how do how do people in your family or how how what are all the different ways that people like musicians can actually make a living? Like for that to be their day job and assume just for this conversation, we're not talking about busking, right?

Zach Frank: Yeah, sure. [00:13:30] So, yeah, I mean, of course you could be a professional musician that plays, um, in a band and you could be an actual member of a band. You could just be a touring musician. For example, a lot of artists, you know, like Taylor Swift or, you know, anyone, Justin Bieber, anyone who's like a single pop star artist hires a band when they go on the road. A tour member of them. Or you could be a studio musician, which means you just get hired to play on recordings for either records or for movie or TV soundtracks. Yep. You could be part of an orchestra. You could be, you know, a classical player and be [00:14:00] part of an orchestra.

Caleb Newquist: Yep.

Zach Frank: Could be a composer. And for that, there's a bunch of different lanes for, you know, TV, film, um, you know, there's a whole industry now just with what they call sync licensing, which means when you hear a song in a movie or a commercial and let's say, you know, we want this song, we want to license a Beatles song, we're never going to be able to pay for it because it costs a lot of money. Yep. We want something that kind of sounds gives us that vibe. They will hire someone to, you know, rip them off without getting sued and recreate that kind of. And that's the entire industry. People [00:14:30] that they could, you know, have a professions like that. Of course, there's also teachers colleges at high schools, private lessons. I'm sure I'm forgetting a ton of other ways to make money as a musician, but, uh, yeah, there's a lot of different.

Caleb Newquist: There's lots of different ways. Yeah. I mean, it's it's like, like mini jobs. I think when it comes to the arts or show business, I think there's way more jobs than people think there are. Um, but it's not like, you know, it's not like computer [00:15:00] programmers, like they're not thousands, thousands of thousands of jobs, but, um, all right. And, um, okay, cool. Now I'm a little bit older than you, but I imagine because, uh, your family is full of musicians you are familiar with kind of the upheaval in the music industry over the last 20, 25 years.

Zach Frank: Yeah, of course, in multiple ways, obviously with everything going digital. But we also talked about musicians and, uh, sampling and like, fake [00:15:30] instruments, emulators, uh, took away tons of jobs of actual working musicians for those studio gigs and those recording sessions as well.

Caleb Newquist: Right now, do you remember, are you old enough to remember Napster or. No?

Zach Frank: I do remember Napster. I actually never had it. I don't know if it worked on Macs back then, but I had LimeWire and Kazaa.

Caleb Newquist: Which were similar services.

Zach Frank: Which, yeah, peer to peer, similar type of thing.

Caleb Newquist: Yeah. Yeah. So I was in college when Napster came out and I, I confess I used it, I used it quite a bit, but [00:16:00] it was kind of it was, it was, it was this crazy innovation of the time, the peer to peer music sharing. And it was it was a fun way to kind of discover new music stuff that was either, you know, you know, rare recordings or bands you had never heard of or whatever. There's all kinds of things that made it cool. The thing that was not cool about it was that the artists weren't getting paid. So their work that had been recorded, [00:16:30] you know, normally they would make money from either record sales or touring or or licensing if they wanted to license it to somebody. But these streamers napster's the one I'm talking about, basically cut all that out. And so people were listening to all this music completely in its entirety for free. Did I capture it? Is that basically.

Zach Frank: Yes, 100% back then? You can make a lot of money for album sales or CD sales, right? You know, singles weren't as much of a deal. [00:17:00] Nowadays it's all about the single, because back then people were buying an album for, you know, around 10.99, I want to say is what it was around that.

Caleb Newquist: So CDs. Yeah. Cds, like 12 bucks maybe. Yeah. 15. 16. Yeah. Mhm.

Zach Frank: I mean stores dedicated to it. Right. There was a Tower Records.

Caleb Newquist: Yeah. I'm trying to remember where did I buy CDs. I feel like I Hastings music I think was one but that was like Midwest.

Zach Frank: Like Best Buy used to have like Circuit City, Fry's. All those electronic shops used to have CD sections.

Caleb Newquist: Right, right. Yeah. All right. [00:17:30] So then for for streaming. Streaming has come a long way since then. Can you briefly just talk about how streamers work today? Because Napster like there's a bunch of litigation and eventually Napster was forced out of business. But so then can you quickly summarize, like how that evolved into what we know about music streamers now?

Zach Frank: Sure. So there's a you know, I'd say there's 3 to 5 big streamers around Spotify, Apple, [00:18:00] Amazon Music. I think still exists. Google music, potentially some of those shut down by now. Uh, there's tidal still, which is doing its thing a little bit.

Caleb Newquist: Jay-z owns that one, right?

Zach Frank: Yes, he started it. That's right. Um, so basically there's a they make big licensing deals with the major record labels to get access to like, distribute their songs on, on those platforms. And then also for smaller artists who aren't either signed by record labels or independent, they, uh, go through intermediaries like Distrokid is one. There's multiple [00:18:30] options where they can get their music onto streaming platforms itself directly to, and those platforms host the music. You could subscribe to those platforms. Usually the service, the way it works is, uh, they offer a free version. Actually, some of them don't, but they offer a free version you can listen to, you know, with ads, or you have a paid version for no ads, unlimited music. You pay monthly for it. Yep. You know, everyone's in the SaaS business, right?

Caleb Newquist: Which one do you use?

Zach Frank: I have Apple Music and Spotify. Do you?

Caleb Newquist: Yeah, I had Apple Music for quite a while, and [00:19:00] then I switched to Spotify and I forget why I decided to do that, but I, I just have a I have Spotify, but I have a family. I have a family subscription. Yeah. Because I don't want the other people in my house fucking up my algorithm, man.

Zach Frank: I feel like, uh, Apple Spotify just has a better UI, UX, right? Like, the interface is just better than Apple in my opinion.

Caleb Newquist: Yeah, yeah. Okay, cool. And, um, so then can you just talk a little bit about how royalties work? Because I think that's I think [00:19:30] that's historically I think most people understand royalties is how people who create something get paid. But in music. Well, in, in all, in virtually all creative professions, that has changed quite a bit. Can you just talk about how it's worked in the past in music and how it works now?

Zach Frank: Yeah of course. So I'm going to try to simplify this. You know, it could get kind of complicated. And you know so.

Caleb Newquist: You're explaining it to my kids Zach. That's what we're doing.

Zach Frank: All [00:20:00] right. So basically for every piece of music that's written, there's the songwriters and there's the publishers. So think of it as it's easier almost to think of that as 200% instead of 100%. So, you know, your songwriters, whoever many, there's two of them. Each songwriter gets, you know, usually 5050. Obviously you could come up with their own ideas and like, deals, but, um, and then the publisher side, those are the ones who get like, their music publishers. They're not actually the record label. They could be the record label, but they're not. And those are the ones who usually get the songwriter and artist and the musicians [00:20:30] together to create the song. And that equals another 100% can be broken down into multiple, you know, multiple ways. Um, if you sample a song in the song, then that becomes a whole other issue where you have, like, you know, all of a sudden there's ten songwriters and then there's like 15 publishers because you have multiple, you know, if you take a line from another song that's called sampling or interpolation and it gets complicated with that. But anyway, that's 100% a song.

Zach Frank: There's a songwriter, hundred percent there's a publisher. And then, you know, they're distributed, like we said, on Spotify, they can be used in movies. There's performing rights organizations that collect those [00:21:00] royalties, like ASCAP or BMI. Yep. There's also ones that collect the mechanical royalties, which again, are split up between the songwriter and the publisher. And those would be the streams from Spotify or Apple. Um, and then also they also pay a record company for the actual track itself being played like the actual version of it. Yep. It is a very, very complicated system, which is why there's so many specialists and organizations and industry like specific fields, like just for collecting royalties, [00:21:30] right, as mechanical royalty collection. There's like I said, ASCAP and BMI are both gigantic organizations. Um, and there's multiple other ones, like there's there's organizations that I belong to just to find like what you missed, like. Oh, right. We think you probably owed money. You're owed money for royalties of stuff you've done that you just haven't collected. And those, I think, collect hundreds of millions of dollars a year for people total.

Caleb Newquist: Sure. Right. Yeah. So it's incredibly complicated. And there's and nowadays there's more there's more music being produced than ever. And [00:22:00] so I think there was a there was a crazy stat that you were going to share, I don't know, did you mean to share that during the episode or do you want to.

Zach Frank: Yeah, yeah. So basically, um, this is from the former Spotify chief economist. But basically every single day in 2025, more music is released than the entire year of 1989.

Caleb Newquist: And that's when the Batman album came out, and I really liked that album.

Zach Frank: Danny Elfman yeah, yeah. On it.

Caleb Newquist: Yeah. With Prince. Yeah. Those songs were amazing. Yeah. Okay, so. So then let [00:22:30] me see if I can. So if people are, if there's kind of people on both ends of the spectrum, right. There's people that are older than me who remember going to record stores and buying CDs or buying cassette tapes or buying LPs or whatever, and that's how they got their music. And there are young people who don't have that experience at all, but they're but they know how to stream music and they know how to find music just in the same way as, you know, their, their, their older friends and relatives. [00:23:00] Um, but you just pay a subscription fee for the service that puts the music in your ears, rather than owning the thing that has the music on it. And like from a I guess from a practical perspective, I think that's how most people think about it. But how people get how those artists, the creators and then the owners of the creators and the owners. I don't know if that's the right way to think about songwriters and publishers or not, but like [00:23:30] you say, those people have rights to those music and, and, and get paid for that music. And it's fair to say then that that I guess with the advent of the internet that that those mechanisms were completely upended. And now lots of people say that musicians and publishers aren't being fairly compensated for the music that they make or the music [00:24:00] that they own. Streamers collect that subscription revenue, and then they pay out to record companies who then pay, who take a cut, and then artists and publishers then get their cut, Ultimately, and it's almost like there's an extra middleman in there. Is that fair to say?

Zach Frank: Yeah, for sure, because, um, I don't know if it's necessarily extra because maybe before, like the Best Buy or the Tower Records would get a percentage of. Oh, sure. Sale. Right. But [00:24:30] it's, um, the Spotify's and the apples are definitely earning more per share of song than any other type of distributor ever has before, right?

Caleb Newquist: Okay, cool. And Spotify, since you mentioned it, they're the biggest streamer in the world, um, in terms of market share, number of users, subscribers. They they aren't as big as like Google and Facebook in terms of how much money they make. They made 17,000,000,000 in 2024. Um, and it, [00:25:00] it they paid out 10 billion to, uh, the music industry. And it claims Spotify claims that 70% of its revenue goes to the music industry. Um, Apple and Amazon have, you know, streaming services with huge music libraries as well. And there are smaller players, as you mentioned, but um, but Spotify and Apple, those are, those are two, the two big ones. And um, and they and they, they make a lot of money from it. So it's kind of displaced [00:25:30] the money that consumers spent in record stores and places like that. All that money is going to big tech companies now.

Zach Frank: Yep. And also just to add something that you might not be aware of, but the bigger the more popular artists, they actually do better, uh, revenue streaming deals to get their music on those platforms so they pay better for the bigger artists. The smaller artists even get screwed more over.

Caleb Newquist: Oh, right. Okay. Interesting.

Zach Frank: Because each deal is, like, individually made, right? You know.

Caleb Newquist: Negotiated.

Zach Frank: Right? Yeah. Yeah. I mentioned they [00:26:00] sometimes have blanket licenses with record companies, but even so, most of the time for the bigger artists, it's right.

Caleb Newquist: So like.

Zach Frank: Taylor's.

Caleb Newquist: Taylor Swift and Beyonce for example, they have their own deals with Apple and Spotify. They aren't because and and especially popular artists that are on their own labels if they want, if those, if those streamers want those artists on on their platform, then they have to negotiate with them directly rather than like a big record company like capital or whatever.

Zach Frank: Yeah.

Caleb Newquist: Okay. So [00:26:30] that's kind of the background for our next story, which is about a musician in North Carolina by the name of Michael Smith. And in September 2024, the Department of Justice announced an indictment of him. And that indictment reads as following. From approximately 2017 up to and including 2024, Michael Smith, the defendant orchestrated a scheme to steal [00:27:00] millions of dollars of musical royalties by fraudulently inflating music streams on digital streaming platforms such as Amazon Music, Apple Music, Spotify, and YouTube music. Okay, but who is this guy with the very common name Michael Smith? Yes. Michael Smith is a musician and he is apparently a very busy one. He has way too many affiliations to name, but they include Snoop Dogg, Billy Ray Cyrus, DJ Khaled and many others. [00:27:30] He also executive produced a hip hop competition show called One Shot on Bet. He was one of the judges along with DJ Khaled, T.I. and Twista who I had never heard of. Have you heard of Twista?

Zach Frank: Yeah. Legendary rapper.

Caleb Newquist: Okay, yeah. See, you know.

Zach Frank: One of the fastest rappers, like back before Eminem, if you wanted. Yeah, if you wanted to know who could like rap the fastest. Twista was.

Caleb Newquist: Twista was the guy. Okay. Yeah. So anyway, this guy, you know, Michael Smith, he is, um, [00:28:00] he's he's kind of a big shot, strangely. Um, but, you know, with all this stuff going on, you would think that this guy would be some kind of, like, lifelong musician who cut his teeth. You know, the stories that you hear on VH one behind the music kind of stuff, right? Um, but no, it turns out this is so weird. Uh, he's only been in the music business since 2013. And according to what I could find in the research, the legend of Mike Smith [00:28:30] really began in the 1990s when he made a fortune with, quote, an IT business where he wrote one of the main fixes for the Y2K millennium software bug. Um, so, Zach, I'm curious, uh, number one, do you remember Y2K?

Zach Frank: I do remember the fear. Do you was going to go crazy again.

Caleb Newquist: I was I was in college, and I remember people lining up for gas. It was bananas.

Zach Frank: I don't I don't have that level. I think I was in fifth grade, so, uh, I remember people being afraid and like, oh, [00:29:00] you might lose everything on the internet. And then I remember the biggest fear was like, yeah, banking systems are going to go completely corrupt and like, nuclear. I remember even some fear of, like, nuclear bombs. Nuclear shooting off.

Caleb Newquist: Nuclear launch. Yeah. Yeah, yeah. Pretty wild. So if he fixed that or if he helped fix that, then yeah, he probably made some money. Um, but the other thing here's here's what's weird. Okay. According to the indictment, he's 52 years old. And if his career in music started in 2013, okay, [00:29:30] that means that he was, you know, 39, 40 when it started. Now, maybe he played music all his life. Maybe he wrote songs all his life. Let's even say that he produced some music for a good portion of his life. Zach, have you ever heard of anyone building a successful career in music in middle age? Is that is that like a thing that happens or have a story that you've heard?

Zach Frank: So there's [00:30:00] a few artists that got famous in their 30s that I could think of that you know, didn't have much success before then, right? It's extremely, extremely rare. And that is, as an artist, I don't know if I can think of any producers that got famous that late that decided to make a career transition to other writers. Um, the artist, I don't know if you know two Chainz, uh, he first had his first hit, the rapper. I think he was, like, around 36 years old. I know Shania Twain was in her 30s, I think early 30s when she first had [00:30:30] her hit. Okay, which is pretty shocking.

Caleb Newquist: Yep.

Zach Frank: But no, in general, this has not happened. Not without money, at least. Oh.

Caleb Newquist: So money. Okay. Yeah. Funny thing. This guy had he had a lot of money. Yeah. Yeah, he had some. And, um, there's this great article in wired about this story from May 2025, and it described Michael Smith's involvement with that Bet show. He they described it this way, quote, he scouted for rap's next stars [00:31:00] alongside DJ Khaled, Twista and T.I., despite the fact that they were all big name hip hop stars, and he was a relatively unknown record producer with a checkbook. Okay, so so how he made this money? Yes, we mentioned the Y2K thing, but apparently he also ran chains of medical clinics. Um, but he also wanted to be famous, I guess. And so that wired article, you know, explains how [00:31:30] he got into music and, you know, and then he started to pursue that path. But what's strange is he doesn't seem to have given up on his day job because, uh, in 2020, there was just a small matter of Medicare and Medicaid fraud. And there's a there is a Department of Justice press release from September 2020 that announced that Michael Smith and these two other guys, quote, agreed to resolve allegations that they violated the False [00:32:00] Claims Act by causing their health network to build claims for medically unnecessary diagnostic tests and procedures to the Medicare and Medicaid programs. Yeah, they don't like it when you do that. So how did they resolve these allegations? They paid them $900,000. So yeah. So our guy Mike here, uh, he's got an interesting past. He's in the music. He's in the music business. Legitimately. [00:32:30] Uh, but as a second career and pretty much entirely thanks to his money. And then he's got these chains of clinics. Then that's how he made a lot of money. But then he has there's Medicare and Medicaid fraud, and now he's in trouble for streaming fraud. So that's that's all so very strange. So anyway, well, let's should we talk. Let's talk about how what the DOJ said he did. Right.

Zach Frank: Yeah. Let's get into.

Caleb Newquist: It. Here we go. Because it bears a little bit [00:33:00] of explanation. And Zach, you know, kind of the mechanics better than I do. So if you want to clarify anything, just jump in. But first, uh, they allege that he created thousands of bot accounts on music streamers. This involved acquiring thousands of fake email addresses in order to create these accounts. And then those bot accounts had fake names associated with the fake email addresses. Even the DOJ even cited [00:33:30] one email in the indictment. He told a conspiracy, um, he told a coconspirator quote, make up names and addresses. Just make sure they all are the same for family member and also make sure everyone is over 18. Now that syntax is a little off, but never mind. Why would he say something like that? And the and the reason is, is family just family subscriptions are more expensive, right? Because you can have multiple people on them. I don't know like I think Spotify Spotify allows you up to six. [00:34:00] I think it's something like that. But you pay more so these bots in order to strain. In order to stream music, the bots had to have accounts. And in order to have an account, you had to pay a subscription. So they had to they had to pay in order to stream this music. And the DOJ said that he spent more than a million, $1.3 million, uh, to the streaming platforms to create these phony accounts. [00:34:30]

Zach Frank: So I'll add in a couple funny things here. One is, as you just mentioned, uh, in order to like because there are free versions of these things. Yes, but they actually pay out less if you have someone who's free, who listens to your song, even though they run advertisements on it, it will not pay the same as if it's a paid user subscriber that listens to your song. Okay. And the other interesting thing is that depending on where your listener is from, it actually could pay less because subscriptions cost less. So if these bots are all from India, which is a lot of times where they come from, they come [00:35:00] from India. That's just a very common place for bots to come from. They would actually pay less money than if you had a listener in the United States or Canada or somewhere where the cost of the subscription is more.

Caleb Newquist: Right. All right. Interesting. Okay. Yeah. All right. Now we've got the bots. The second thing he did is, of course, he used those bots to stream the music. So he created music, uh, with Coconspirators using artificial intelligence. And he had those bots, remember, [00:35:30] created with fake email addresses and fake names to continuously stream those songs. Here's how the indictment explains it. Quote. Smith used cloud computer services so that he could use mini virtual computers. At the same time, Smith used some of the bot accounts on each virtual computer at the same time. Smith typically used the web players for each of the streaming platforms and had a number of bot accounts simultaneously streaming [00:36:00] music on separate tabs in internet browsers on the virtual computers. Smith purchased and subsequently modified macros, or small pieces of computer code that automatically continuously played the music for him. So Zac, he basically was just creating computers to listen to music that was made by computers all day, every day. Right?

Zach Frank: Constantly.

Caleb Newquist: Constantly. All right. Third, third [00:36:30] part, that of the allegations is that he then collected the royalties on all these streams. Okay, we've got all these streams of AI created songs. And the indictment says in October of 2017, he, uh, Smith had 52 cloud services accounts. Each of those accounts had 20 bot accounts on the streaming platforms for a total of 1040 bot accounts. He further wrote that [00:37:00] each bot could stream approximately 636 songs per day. And so in total, he could generate approximately 661,440 streams per day. He estimated that the average royalty per stream was half of $0.01, which would have meant daily royalties of $3,307 monthly. About $99,000 in annual royalties of $1.2 million. I mean, that's good work if you [00:37:30] can get it. But, um, but also maybe, maybe not 100% legal, right?

Zach Frank: I'll also point out that, uh, yeah, when you get into those details, it's less bots than you would think for that much money.

Caleb Newquist: Way less bots than.

Zach Frank: It's because it's 24 over seven. I guess that's the whole thing, right?

Caleb Newquist: Right. So, like I said, maybe not entirely legal. What was going on here? Because he also tried to conceal what was going on. And so he did this [00:38:00] in a few different ways. But key among them is he created virtual private networks to commonly known as VPNs, but use VPNs to hide the fact that this was all happening from his house, essentially, and a VPN, essentially. Again, you know, the you might know the mechanics better than me, but a VPN essentially creates a new IP address, right? Yes.

Zach Frank: Right. An IP address basically can link directly to where you are in your account. [00:38:30] Occasionally there's shared IP addresses if you want to get into that, that's like, you know, might be reused. But in general, think of it as like an identifier for where you are and who you are.

Caleb Newquist: Right, right. So that would hide the fact that he was it was all coming from this one place. And the other thing he did, and this is probably the other I mean, these two things together are both important. But the other key part of it is he streamed this across thousands and thousands of songs. Right. So and I mean, that makes sense because if you have one [00:39:00] song that no one's ever heard of and it's got millions of downloads, that doesn't make any sense. Like they're immediately going to flag that, right?

Zach Frank: Yeah. For sure. It's gonna be very noticeable if a song with an unknown artist all of a sudden is getting, you know, million streams a day or even, you know, 50,000 streams a day, but no one has ever.

Caleb Newquist: Heard of the artist or heard of the song. Then something's fishy. And so. But if you have thousands and thousands of songs and maybe they stream only 2 or 3 times, [00:39:30] no one's going to notice. Yes, because like you said, we're talking about hundreds of thousands of uploads a day and untold number of streams per day.

Zach Frank: So, yes.

Caleb Newquist: There's only one small problem with this. He needed lots and lots of songs. Need lots of music, and it's kind of interesting because at first he, you know, he just used this catalog of songs that were owned by one of [00:40:00] his coconspirators a guy by the name of Jonathan Hay, who had collaborated with Smith on lots of music and projects over the years. And he was he was the main source for this wire wired story I mentioned, but their catalog just wasn't that big. And so eventually, you know, that music's all used. And then Smith even allegedly tried to sell this scheme as as a service where, quote, other musicians would pay him for streams he would fraudulently [00:40:30] generate or share royalties with him in exchange for fraudulent streams of their music. Now, have you ever heard of that before? Zach, do you think musician are there musicians out there that are just trying to get their streams any way they can, as opposed to getting actual people to listen to their music?

Zach Frank: Yeah, definitely. People think it's a big problem. The music industry with, um, YouTube, with Spotify, with all these things that like, you know, sure, your number is still [00:41:00] a big number, but they want to even be bigger. So even big artists are having fake streams.

Caleb Newquist: Mhm. Okay. Interesting. All right. But that wasn't enough either. So that's when the DOJ alleges that Smith turned to AI. The indictment states that Smith, quote, worked with the chief executive officer of an AI music company and a music promoter to create hundreds of thousands of songs using artificial intelligence that Smith could then fraudulently stream. The CEO of that AI music company, identified [00:41:30] in the wired article as Alex Mitchell of Boomy Quote, soon began providing Smith with thousands of songs each week that Smith could upload to the streaming platforms and manipulate the streams, for Mitchell was not charged in this case, none of the Coconspirators were charged in this case, and at the time of Smith's indictment, he said that, quote, he was shocked by the details in the recently filed indictment of Michael Smith, which we are reviewing. Michael Smith consistently [00:42:00] represented himself as legitimate. Okay.

Zach Frank: All right. So, um, yeah, if you want to have some fun here, depending on, you know, time of this episode, this might get cut or not. Sure. Uh, I don't think people have realized how far AI music has come or what it actually sounds like, especially in the last year or two. I know this happened over years. Yep. But, uh, not from that example, but there's a website called com. Com and their music is incredible. So before this episode, I asked it to write me two songs on Oh My Fraud. [00:42:30] I did not give it any parameters besides, for I wanted one jazz, one pop, and within 10s it pops out. Examples of these I'm not exaggerating. It takes around 10 to 15 seconds to generate an entire song, and we're going to hear these for the first time. On what? This.

Caleb Newquist: I'm excited. I'm very.

Zach Frank: Excited.

Caleb Newquist: All right, let's do it.

Zach Frank: I don't know which one is which. I don't know if it's gonna be the jazz one or the pop one first.

AI SONG 1: I. Gotta [00:43:00] see if. All with a secret stash claiming it's just a little petty cash. He's buying Tesla's first class flights all on the books. But something ain't right. They say numbers don't lie, but people sure do. And if it smells like fraud, it's probably true. All [00:43:30] my fraud. What a show you've made. Stealing in style like a lemonade trade on my fraud. When the auditors call, you'll be the headline baby down, falling off.

Zach Frank: All right, there's that one. And let's take a listen to the second one very, very quickly.

AI SONG 1: There once was a.

AI SONG 2: Guy with a checkbook. Pen said, nobody's watching. I'll try [00:44:00] this again. He bought a boat, a goat and a brand new lawn till the auditors came and said, buddy, you're gone. Oh my fraud. What have you done? You cooked the books and called it fun. From petty cash to corporate kind. We'll laugh about it when you're gone. Oh, my. Fraud.

Zach Frank: All right, so.

Caleb Newquist: Those are great.

Zach Frank: Yeah, just a show that took about 15 [00:44:30] seconds to generate. And, um, this is a whole other issue we're not going to get involved in, but there's a lot of AI music on Spotify at the moment without people knowing it as AI. Eventually people should probably figure that out, but they're not getting fake streams, hopefully at least. Actual real streams. Just fake artists.

Caleb Newquist: Wow, those are so good.

Zach Frank: Yeah, I not heard those before. I told you, they take about 15 seconds to generate each one, and I could give it as many prompts. As many. You know, I could give it a specific style. I could give it a male singer. Female singer, uh, whatever you want.

Caleb Newquist: Who did that [00:45:00] for the pop record? Who did that sound like to you?

Zach Frank: Uh, a little bit like, um, what's her name? How's Halsey? A little bit.

Caleb Newquist: Halsey. Yeah. Yeah, sure.

Zach Frank: Yeah, yeah, a little bit like that to me.

Caleb Newquist: Yeah. All right. Fair. So, getting back to how our friend Michael Smith did this, the AI would spit out the song, right, that it created, and it would always have file names that were just randomized letters and numbers. So the one in the indictment is indulge [00:45:30] me, please. Uh, n underscore 14385895DB1, E4AF78D86 0.3. Okay, so no one in their right mind is going to listen to a song with that as its title. So this guy again, these are the allegations he created randomly generated song titles and artist names. [00:46:00] Now, I don't know. I don't know anything about writing songs. I don't know anything about coming up with band names, but I'm pretty sure that what you are about to hear is not that much better than random ass characters. So here are just a few. Um, uh, here. First are the sample of song titles from the indictment. Uh zygoptera. Phosphoric zygotes. Zygotes. Zygotic [00:46:30] zygote. Zygotic washstands. What the fuck is that?

Zach Frank: Those are terrible. Those are terrible. Yeah.

Caleb Newquist: Yeah. And they're all alphabetical. So you have to imagine that there's, you know, the entire alphabet. The entire English alphabet is just filled with terrible song titles like that. Now, again, just for fun, here are just a few. Just a very small number of the band names Calm knuckles, calorie event, Calvinistic [00:47:00] dust, and camel edible. Now, I don't know what camel edibles are. Perhaps they are THC gummies for camels, I don't know, but those are not band names. Those I don't know what those are. Those are those that is a computer spitting out what it thinks are band names. Anyway, despite all these efforts to conceal what was going on, one music distribution company [00:47:30] and again, these are the organizations that help send songs to streamers. They flagged one of Smith's songs as quote, fitting the criteria that is usually linked to store and streaming abuse, and he replied, quote, I acknowledge what you wrote and I ask that you still release it. We have no intentions of committing streaming fraud, which I don't know. That's kind of a weird thing to say, right? If you're releasing I [00:48:00] don't know. On the one hand, if you're releasing thousands of songs and maybe one of them gets flagged, would you just say, oh, that's weird and just be like, yeah, no problem, scrap it. Or do you think that invites more scrutiny? I don't know, it's it just seems as though I don't know what to make of.

Zach Frank: It's also it's also worth pointing out here that, um, from 2012 to 2019, Spotify actually allowed individuals to directly upload their songs. Oh, right. I guess that would have been too much work. Yeah. [00:48:30] Um, instead of having to use these distribution companies like I mentioned before, you know, there's Distrokid, there's Tunecore, CDBaby. Those are some of the big ones. Yep. And just just for some idea of the cost, it costs about anywhere from $30 to around like $150 for a yearly subscription for unlimited songs upload through those platforms. It's not like it's a costly thing, but, um, I'm curious why he was, uh, not just doing it himself if he's running into these problems. Right? He's still going through an intermediary like one of these companies.

Caleb Newquist: All right. [00:49:00] The first sign of trouble was 2018, and later that year, he was advised again. And he was warned yet again in March 2019. And after he got that warning in 2019, he responded and he said, quote, I have done nothing to artificially inflate the streams on my two albums. I have not done a thing to illegally stream my music. I have not violated the terms of my agreement with you at all, and you have provided no proof either. I have not illegally streamed my music. And [00:49:30] then in yet. In May 2019, he allegedly emailed a coconspirator quote I can't run the bots without content and I need enough content so I don't overrun each song. That's the problem. If we get too many streams on one song, it comes down. So the chronology doesn't look good. If those are, you know, both of those things are true. But even after the royalty payments stopped. So eventually he stops [00:50:00] getting paid royalties and he has been accused of streaming fraud. He continued to claim that he was not committing streaming fraud. Forget about the streamers. Forget about the terms of use. Just think. If we just think about this strictly in terms of the the money generated and the money paid out, he's create even if he's using AI to create the music and he's creating bots to stream [00:50:30] the music. Is he effectively stealing money from artists whose music that isn't getting streamed? Like, what's happening like, is that how does how how does that work in such a way so that he's actually taking money that actually belongs to somebody else.

Zach Frank: So he's not taking money that from artists that aren't being streamed. What could be argued and, you know, Spotify and these companies I don't think have ever released all this information. So it's speculation a little bit. Yeah. But basically, you know, if [00:51:00] the total amount of streams in a month were, you know, 50 billion, they try to break that down into like, oh, well, what got the most streams? Like, you know, it doesn't pay out the same every month. It depends on like ad revenue and other things. So for that month, if you're someone who's stealing money and getting those streams and the pie's getting broken down into like into a certain amount, then like, yeah, you're taking that money. But again, it would be a total the total pie would be less if they didn't have those streams to begin with because they're all fake streams. Right.

Caleb Newquist: So here. So what you're what [00:51:30] you're talking about is something that's called stream share. Okay. Yes. And Spotify explains and this is you know, the streamers do their best to try to explain how this stuff works. And this is how Spotify explains it on its website. It says, quote, we calculate stream share by tallying the total number of streams in a given month. That's what you were saying, and determining what proportion of those streams were people listening to music owned or controlled by a particular rightsholder? So if you're a rights holder to thousands [00:52:00] and thousands of AI generated songs and thus have a very large stream share, then you might be diverting royalties away from musicians and songwriters who create music that's not generated by AI. Fair.

Zach Frank: Yeah. Yeah. For sure. Okay. I just don't I don't think it's a huge amount, but some money for sure.

Caleb Newquist: Right. So okay. In this case, by February 2024, Smiths songs had 4 billion streams and had generated [00:52:30] $12 million in royalties.

Zach Frank: Absurd. I would love to know the total number of songs that took to get that balance right.

Caleb Newquist: Yeah.

Zach Frank: How many? Thousands.

Caleb Newquist: So and like. So we'll get into this a little bit. But it I guess it's worth mentioning at this point that not everyone thinks that this guy is a villain or a criminal, right? There are plenty of people in the music world that kind of he's kind of a folk hero [00:53:00] in a way, and that he is that he just happens to be exploiting an exploitative system. Um, Zack, I mean, can you add any kind of color or detail to that?

Zach Frank: Yeah.

Caleb Newquist: For sure to help explain.

Zach Frank: So, um, you know, this is a famous example that happened, I think, around a decade ago now. Uh, there's a band, uh, decently well known called Vulfpeck, Who at one point released. They wanted more royalties. You know, they're like, we're getting paid really shitty royalties from Spotify and [00:53:30] stuff. We want, you know, we need to make more money as a band. They released a silent album and told their fans to just stream it while they slept on repeat. You know, just keep on playing the songs. Yeah. Uh, now, you know, if you want to argue, like. Oh, but they didn't have any wasn't any music like they were taking advantage. What if they told their fans just to stream their songs, but mute but mute them? Yeah. You know, like, does it really matter if they're like, blank songs or if they have, like, lyrics and music to them, if their fans are pressing the play button.

Caleb Newquist: Is it music if no one hears the notes?

Zach Frank: Yes. [00:54:00] Um, so, yeah. You know, in fact, there's a famous classical piece, uh, it's by John Cage. It's called 433. And what it is, is it's like, you know, a four minute, 33 second song where the piano player plays one single note and it just sits there the whole time, otherwise. And this has been formed in giant venues in actual, you know, places. Yeah. Is that real Carnegie Hall?

Caleb Newquist: Yeah.

Zach Frank: Yeah. Fantastic. Yeah. So this is kind of taking that to a more extreme. And like if Spotify, if someone's playing the blink music, like, who are they to say that that's not real? I think [00:54:30] they end up getting a $20,000 for those streams. But then they got in trouble, got like kicked off Spotify for a while. This whole thing, they got back on. But it was like, yeah, it was a whole ordeal.

Caleb Newquist: All right. So so here's the other thing. And you just kind of alluded to it. But these streamers, you know, they do have terms of use right. It says you can't use our you can't use our platform this way or you can't do this on our platform. You know, if that that's a violation of our use and that, that if, if you if you violate those terms, we can kick you [00:55:00] off distributors. Similar if your music qualifies as not real, then you're not eligible for royalties. Um, and that's what Mike Smith found out. Um, you know, I think that's where people are split. And I don't know if you've got a sense of, like, how the music world is kind of split if it's 50 over 50 or if it's just a really loud, a small, loud group of people who think that he's not a [00:55:30] criminal or vice versa. But, um, it is uh, it is a it is a tricky area. And, um, yeah. And like I said, some people think it's a, it's it's someone exploiting an exploitative system for sure. Yeah. The indictment, he's charged with two counts of wire fraud and one count of money laundering. But this is the like the this is the first big streaming fraud case that's ever, uh, been brought. And, um, and [00:56:00] he is he's fighting the charges and he retained a pretty well known firm, uh, Harris, uh, trachoma. I don't know if I'm saying that. Right, but it's a it's a white collar defense firm. They they represented Diddy in his criminal case. Um, and, uh, that's who he's got for lawyers. And, um, he intends to fight the charges. So we'll we'll keep you all updated. But anyway, that's that's the story of Michael Smith. And, uh, Zach, thanks [00:56:30] for coming on and talking about it.

Zach Frank: Yeah. Of course.

Caleb Newquist: All right. What did we learn? Big corporations, and I think especially big tech corporations aren't exactly sympathetic victims. Their power and influence in our lives is vast. While they do create products and services that many of us enjoy and find useful, there's definitely a dark side to their power and influence, [00:57:00] too. History has shown that too much power, too much influence in the hands of a small number of companies can be incredibly harmful. People, consumers, employees, communities can be exploited by that power and that can cause greater harm to them. Oh, and the people who control and run these companies are getting absurdly wealthy in the process, which just reinforces and entrenches their power further and just creates greater imbalance. The [00:57:30] relationship between the music streamers and the artists whose music they deliver to users is a perfect example of this. The vast majority of artists are not adequately compensated for their creative output, and yet they don't have many options for getting their music out there in the world if they don't put their music on those streamers. So when we see fraud stories like these that involve people who are turning the tables on these big, powerful corporations, I don't really blame [00:58:00] you if you want to root for them. But on the other hand, the authorities are bound by the law. They have to enforce it when it's broken. They don't get to pick and choose. Now we are living in a time where that's being tested pretty significantly, but that's another episode. Most of us can look at these big tech companies and say, yeah, that's not fair. I don't like what they're doing.

Caleb Newquist: It's not right, but we're not going to steal from them. If the majority of people [00:58:30] think that the laws or rules are unjust, then we can try to pressure our representatives and the government to change them. Or we can simply not patronize those businesses that we feel are treating us unfairly or behaving in ways that we don't agree with. But it is getting harder to do that to more and more elected officials are carrying water for these companies instead of the people that elected them. Because our political system allows wealthy corporations [00:59:00] to bankroll people running for office, and also because these companies have been allowed to minimize their competitors or eliminate them altogether. We as consumers have fewer choices in the marketplace. And when that all happens, it's kind of fair to ask does all that justify fraud? Okay, that's it for this episode. And remember, you can rob rich corporations and give to the poor, but no one will write songs about you. [00:59:30] But I guess an AI might. If you have questions, comments, or suggestions for stories, drop me a line at oh My Fraud at com or you can hit me up on LinkedIn. Oh my fraud is created, written, produced and hosted by me Caleb Newquist. Zach Frank is my co producer, audio engineer, and music supervisor. Laura Hobbs designed our logo. Rate review and subscribe to the show wherever you listen to podcasts. If you listen on earmark, that's where you earn CPE. Join us next time for more avarice, swindlers and scams from [01:00:00] stories that will make you say oh my fraud.