Photo illustration: Sarah Grillo/Axios. Photo: Eva Marie Uzcategui/Bloomberg via Getty Images
The Block, a media company that says it covers crypto news independently, was secretly funded for over a year with money funneled to The Block’s CEO by the disgraced cryptocurrency trading company. of Sam Bankman-Fried, sources told Axios.
why is it important: The payments, which The Block employees were previously unaware of, could undermine the news company’s credibility and cast doubt on its coverage of Bankman-Fried, now bankrupt FTX and Alameda Research, the trading company of Bankman-Fried.
- A $16 million batch of funding from Alameda was used in part to fund the purchase of an apartment in the Bahamas for Block CEO Michael McCaffrey, according to people familiar with the deals.
Drive the news: McCaffrey has stepped down as CEO and is leaving the company, The Block chief revenue officer Bobby Moran confirmed to Axios on Friday. McCaffrey is also stepping down from its board.
- Moran will take over McCaffrey’s role as CEO and will also seek to restructure The Block to buy out McCaffrey’s stake in the company, he said.
- McCaffrey has been the company’s sole board member since April 2021. Moran said he will join The Block’s board, which will also add two additional seats.
Catch up fast: The Block was founded in 2018 and McCaffrey became CEO in 2020.
- In April 2021, McCaffrey led an investor takeover of The Block, making the company 100% employee-owned, with McCaffrey holding a majority stake.
- The unprofitable company previously raised more than $4 million in convertible notes from venture capital firms including Greycroft, Pantera, BlockTower Capital and Bloomberg Beta, Axios’ Kia Kokalitcheva reported.
- Its revenue, mostly from ads and subscriptions, is expected to be around $20 million this year, a source told Axios.
Details: In early February last year, McCaffrey began talks with Bankman-Fried about a loan to fund the takeover, according to two sources familiar with the conversations.
- McCaffrey-controlled LLCs received a total of three loans from Alameda, some of which can be converted into company stock by the LLCs.
- McCaffrey used the first loan, for $12 million in April 2021, to fund the takeover of the block, through an LLC named MJMCCAFFREY LLC.
- The second, for $15 million in January 2022, provided capital to the bloc through an LLC named Lonely Road.
- The third, for $16 million in the spring of 2022, went to an LLC named Red Sea which McCaffrey used, in part, to buy the apartment in the Bahamas.
- Moran confirmed that these transactions took place.
Between the lines: Moran said McCaffrey first told him about the deals just before Thanksgiving. He and McCaffrey briefed a few members of the company’s senior editorial team earlier this week.
- The newsroom was briefed at a general meeting early Friday afternoon.
- “My immediate reaction was anger, frustration and concern for all of my colleagues,” Moran said. “Everyone has worked incredibly hard over the years – from before I arrived and since I’ve been here – to be fair, accurate and independent in their coverage and thought it would challenge that. And it’s frustrating.”
The news came as a shock to The Block’s editorial management, who sources say are furious at McCaffrey’s failure to disclose such a close and critical financial partnership with Bankman-Fried and Alameda, especially now that they continue to cover the fallout from the collapse of FTX.
- On Monday, the site’s news director, Frank Chaparro, interviewed Bankman-Fried for the company’s podcast.
- Its vice president of research, Larry Cermak, on Tuesday circulate a list he compiled hundreds of investments made by Alameda that had been reported by the Financial Times.
- Two of Alameda’s loans to McCaffrey’s LLCs are on the list. Cermak said he didn’t know the LLCs were connected to McCaffrey when he circulated the listing on Twitter.
- “Mike never asked me or anyone in research to cover FTX or SBF in any particular way. Or anyone else, for that matter. We had full latitude to do our job,” said Cermac.
- “I’m proud of the work done by our reporters, especially in covering the fallout from the FTX implosion,” said The Block’s managing editor, Sarah Kopit. “In my time, Mike never had undue influence on the editorial staff. We were always completely independent.”
The big picture: No disclosure was ever made by The Block of Alameda Research’s financial support of Bankman-Fried, or that McCaffrey-controlled LLCs received loans from Alameda.
- On its disclosure page, The Block writes, “It is essential that The Block be fully transparent about our own financial holdings to avoid any appearance of bias or impropriety. The most valuable asset we hold and that we strive to earn anew every day is the trust of our readers.”
And after: Moran said all senior leaders remain with the organization and the company will continue to operate and publish.
Editor’s Note: This story has been updated to clarify who will hold equity in the block after any conversion of loans to McCaffrey’s LLC.
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