SDNY
COURTHOUSE, Oct 6 – A defendant
who pled guilty to streaming fraud, Michael Smith of North
Carolina, was up for sentencing on October 6 before U.S.
District Court for the Southern District of New York Judge
John G. Koeltl. Inner City Press was there, thread here
(and extra on Substack)
All
rise!
Judge Koeltl: I've received the most recent October 6
submission. There's an agreement if I am correct to enter
a forfeiture order of $8,091,000 million
AUSA: We'll provide you an order. We are not seeking
restitution. We corrected on Oct 2
[The
correction was to drop a reference to "social services
program fraud"]
Judge Koeltl: Please pass that up.
[He is reading it]
Smith's
lawyer Harris: During this time period there was great
uncertainty about how much humans could use AI and still
seek copyright -
Judge: Where?
Harris: 36-b in the pre-sentencing report [which is
sealed]
Smith's
lawyer
Harris: Mr. Smith only brought his wife Erica with him,
but not their six children. But it is expensive to travel
from North Carolina. And his mother-in-law, there are
health reasons. Mr. Smith has reflected deeply, he has
faced threats
Smith's
lawyer
Harris: Mike takes full responsibility for what he did. He
lied. He claimed the streams were real. It was built to
evade detection. He pled guilty to a felony. He spent two
years on pre-trial release. He feels shame and regret
Smith's
lawyer:
There was only de minimus impact on any particular artist.
There's no restitution because it cannot be calculated.
But we are not saying no one was hurt. Mike's conduct
contributed to corruption. The 46 to 57 month guideline is
too high
Judge
Koeltl:
I'm not sure how much that argument gets you. It is common
ground among many judges that the financial guidelines can
tend to overstate the seriousness of the crime
Smith's lawyer: If $8 million in spread over many people,
it is different than from 4
Smith's
lawyer:
Our client admits that he lied. But this field was largely
unregulated prior to the bringing of these charges. When
Mike began using the words, I'm not committing stream
fraud, it was unclear. The terms of service did not
prohibit this
Smith's
lawyer:
To this day, Amazon Music does not clearly prohibit
artificial streaming.
Judge Koeltl: Are you referring to songs made by AI, or
the creation of fake views by bots?
Smith's lawyer: I am not referring to AI songs.
Smith's
lawyer:
This is rampant throughout the industry. Some of the
biggest players are responsible, even complicit. I am not
saying that to excuse it. The Government says today 10% of
the streams are potential AI
Smith's
lawyer:
He began to experiment with AI to help his make different
versions of his own songs. There are AI musicians who have
signed contracts. Spotify-
Judge Koeltl: It was not the use of AI which was targeted
here.
Smith's lawyer: It was a tool
Smith's
lawyer:
The former AUSA who indicted this case, she's spoken at
many conferences, she called this a "test case." This
seems like an acknowledgment that it was not clear.
Judge: This prosecutor was not suggesting this indictment
was not well founded
Judge:
There
is no enhancement here for vulnerable victim. But this
defendant did plead guilty.
Smith's lawyer: And he will be sentenced for his criminal
conduct. He sought advice from counsel - but he admits he
rationalized his conduct
Smith's
lawyer:
He is the type of person we need more of in his world, not
fewer. He did this in an emerging technological world,
everything in evolution. There have been 1000s of articles
about this case, there have been CLE [Continuing Legal
Education] programs
Smith's
lawyer:
Only structural reforms will solve this. The possibility
of making a living from music is increasingly bleak. There
are power inequities. In terms of punishment, he was
arrested at his home, and has been shamed. His studio was
foreclosed on
Smith's
lawyer:
His wife's dance studio, attendance is down by 30%. His
kids were stigmatized. He has a job offer from a music
studio in Nashville. Jail is not the only punishment. It
is a blunt instrument, often ineffective. Little good
comes from caging
Smith's
lawyer:
He has so much to give. Make him go back to his original
love of music. He could teach guitar to underprivileged
communities. Judge Torres ordered a pianist to play piano
in nursing homes. Another, to teach boxing
Smith's
lawyer:
In the recent NFT case of Chastain, Judge Furman
recognized it was a frontier case, gave only three months
of home confinement. Justice is not one size fits all. A
novel prosecution deserves a novel sentence. My colleague
will address Mr. Smith
Smith's
2d lawyer: We are requesting probation. When he was 16,
Mike's friend Martin was contemplating suicide. Mike
helped... In 2012 a woman faced foreclosure, could only
pay $800. He and Erica said, that's just what we're
charging. He did a hip hop show on BET
Smith's
2d lawyer: A musician was struggling; Mike paid to move
them to Florida. Goldlocks, an artist on his label, Mike
said for her videos out of his own pocket. $2000 for vets
in an orphanage in Uganda
Smith's
2d lawyer: And this came after his step-father strangled
him. His best friend says Mike decided to become the
father he himself never had. He has six children, three of
them biologically his. Erica's ex husband was abusive
Smith's
2d lawyer: He's 54. He can't pay the money back from
prison. He will have this felony conviction with him the
rest of his life. You are about to hear from him.
Judge Koeltl: I'll listen to you.
Mike Smith: I wanted to be a good husband and good father
Mike
Smith: I need to make amends. I betrayed the music
community I care so much about. I love writing songs but I
turned it into a perverse business model. I suspended my
own sense of right and wrong. I let my family down. I am
blessed to have Erica
Mike
Smith: I stand ready to build something positive to atone
- I want to make music. I could teach computer coding. I
am sorry.
Judge Koeltl: AUSA Chiuchiolo?
AUSA Nicholas Chiuchiolo: In 2018 a platform flagged him
for fraud but he denied it.
AUSA:
The defense claims the world has changed - but this was
frowned upon at the time. The attorney consultation? He
has not waived privilege, no visibility into it. So it is
not relevant. The plea in this case, the Court asked, Did
you know it was illegal?
AUSA:
There was back and forth, no a simple "no." Yes the case
has gotten attention, streaming fraud is a problem. You
can achieve general deterrence with jail time. Judge
Rakoff says that too, as to white collar crime. This was a
serious crime.
Judge
Koeltl:
I'll place the pre-trial report under seal. Over five
years the defendant orchestrated a scheme to fraudulently
steal millions of dollars in royalties. He uploaded 1000s
of songs, many by AI, then falsely streamed them. The
victims are the artists
