Comment by jumhyn | Hacker News Reader

Comment by jumhyn | Hacker News Reader

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You're overthinking this. From the indictment (page 4):

> at relevant times to this Indictment, a Manhattan-based music distribution company ("Distribution Company-1 ") [...] required customers, such as SMITH, to "agree not to engage in (or to permit, encourage, enlist, retain, or employ third parties to engage in) [...] any activity and/or method which involves the artificial creation, by human or non-human means, of online or offline plays on audio and/or audio-visual streaming services, where such plays do not represent bona fide end-user listening and/or views initiated by genuine consumers and taking place in the reporting country."

Moreover, the arbitrage available here doesn't really have anything to with "burning investor money". Aside from the fact that Spotify has been profitable so far in 2024, this fraud would be possible even if they had been profitable during the whole time the fraud had been carried out: it doesn't require that Spotify's royalty outlays be greater than their subscription/ad revenues in the aggregate. Rather, it relies on the fact that royalties are calculated in terms of total streaming volumes, but subscription prices are volume independent.

So while it's possible for a single individual to abuse the system and generate more royalties for themselves than what they pay in subscription revenues, it wouldn't work as a method in the aggregate for Spotify users to en masse produce royalties that exceeded streaming revenues. Even in unprofitable years their revenues greatly exceed their royalty payments. E.g., Spotify reportedly paid out $9B in royalties for 2023, on over $14B of revenue. At that point they were still operating at a loss due to R&D, marketing/sales, and administrative expenses, but that's all quite aside from their royalty calculation system.

What a company 'requires you to agree to' is unrelated to fraud. The issue I'm considering is whether the relevant crime is fraud.

def., Fraud, "knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment"

For it to be fraud, they would have had to relevantly misrepresent themselves in some transaction. The question is whether their actions were misrepresentations. This is unclear.

If I upload a song to Spotify I am not promising anything wrt to who listens to it or how. If I stream a song from Spotify I'm not promising to listen to ads, or only to listen to as many songs as are profitable for Spotify. So it's unclear that any misrepresentation has been made.

Spotify is well within its rights to terminate these accounts for TOS violations, and there might be some crime in taking payments from spotify.. but this is quite unclear.

There's a real problem in saying that whatever BS a company puts in its TOS defines fraud and if you dont do that you're defrauding a company. If that's true, then you're probably defrauding companies all the time, as are many.

> The question is whether their actions were misrepresentations. This is unclear.

Accepting the facts in the indictment at face value, I really don't see how this is unclear. The contract between Smith-the-artist and Spotify was that they would pay him royalties for legitimate streams which were not the result of manipulation, and that he would not deliberately manipulate the streams.

Smith then knowingly violated these terms, attempted to conceal his violations from Spotify, and continued to accept the royalty payments to which he knew he was not entitled. Aside from the misrepresentations required to initially set up the scheme (e.g., signing up bot accounts under fake names), he also repeatedly and directly denied participating in the exact sort of scheme he knew he was perpetuating: "I have never done anything to artificially inflate my streams". The allegations in paragraphs 26-30 cover several instances of this.

> If I upload a song to Spotify I am not promising anything wrt to who listens to it or how.

I'm not sure how you are squaring this with the quoted portion of the indictment from my prior comment. Smith did, in fact, make promises regarding who would listen (and how) to the songs he uploaded: namely, that he would not personally or via a third party listen to the songs in a manipulative manner.

> There's a real problem in saying that whatever BS a company puts in its TOS defines fraud and if you dont do that you're defrauding a company. If that's true, then you're probably defrauding companies all the time, as are many.

That's simply not the case here. Smith was not inadvertently running afoul of fine print buried deep in TOS that he never read to trivial detriment of some corporation. He was engaged in repeated and deliberate misrepresentation with the intent of inducing Spotify and distribution companies to pay out royalties in excess of $10M to which he knew he was not entitled.

Sure, so it's in the signup for the downloading accounts -- that's plausible. If those were free accounts, then I'd agree its fraud. I'm just interested in what interaction was the fraudulent one.

If those were premium accounts, then I doubt it would be fraud.

> it's in the signup for the downloading accounts

That's certainly not the only misrepresentation Smith made throughout this scheme.

I'm having trouble understanding why you think it's particularly relevant whether these were free or paid accounts (as alleged in the indictment, the fraud made substantial use of paid family plan accounts).

It's worth noting that the scheme here was not merely bilateral between Spotify and Smith--it involved multiple streaming services, multiple distribution companies, the "Rights Organizations", and financial service providers who were all part of the overall scheme of delivering unearned royalties to Smith based on fraudulent streams.

If the facts alleged in the indictment are true, it seems immensely clear to me that Smith made multiple false representations to each of these parties as part of the scheme to have them deliver streaming royalties to which he knew he was not entitled. Among those false representations were: - false names provided on accounts for the purposes of concealing his identity - statements to financial service providers in order to obtain debit cards in those false names - agreement that he would refrain from engaging in manipulative streaming activity - insistence that he was not engaging in such manipulative activity when suspicion s arose

Smith directly responded to the suspicions that arose as early as 2018, but the scheme continued for years afterwards. So even if one were to make the case that he was initially unaware of a clause buried deep in the TOS, he was made expressly aware that he was in violation of those terms and chose to continue deceiving the parties (and indeed increased his efforts to conceal the fraudulent activity from the streaming platforms).

Now, it may be the Spotify alone wouldn't have a case for damages here since his activity didn't directly cause them to pay out more total royalties, and his subscriptions increased the total pool. But this isn't a civil case where Spotify is suing for breach of contract to claw back the royalty payments; there was $10M in royalties paid out to Smith that came from somewhere which was owed to someone other than Smith. Smith lied to multiple parties involved in the music steaming business in order to induce them to make those royalty payments.

I'm no lawyer, and so don't have a great idea if there's technical elements to the charges here that will be difficult to prove beyond a reasonable doubt, but I think it's more than clear that this was not 'fair play' on the part of Smith. I am reminded of the viral 'free money glitch' that went viral several weeks ago on TikTok: people were writing fraudulent checks, depositing them at ATMs and then withdrawing the cash portion that Chase permits you to withdraw before the check has fully cleared. That the automated systems for preventing this sort of abuse were imperfect does not somehow make it not fraud.

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