Michael Smith pleaded guilty to an $8 million fraud scheme using AI to create songs and bots to generate billions of fake streams, siphoning royalties over seven years. This case highlights risks in the growing music royalty investment market, where streaming royalties are divided from a fixed monthly pool, meaning more AI-generated streams dilute earnings for genuine artists and investors. Streaming platforms face challenges detecting fraud amid a surge in AI music uploads, threatening the predictability of royalty income that underpins music-backed bonds and funds. Investors should scrutinize fund holdings and platform fraud defenses as regulatory clarity on AI-generated music royalties remains uncertain.
