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, has been secretly funded for over a year with money transferred to The Block’s CEO from disgraced Sam Bankman-Fried’s cryptocurrency trading firm, sources told Axios.
Why it matters: The payments, of which The Block staff were previously unaware, could undermine the news company’s credibility and cast doubt on its coverage of Bankman-Fried, the now-bankrupt FTX and Alameda Research, Bankman-Fried’s trading firm.
- One $16 million batch of funding from Alameda was used in part to finance the purchase of a condo in the Bahamas for Block CEO Michael McCaffrey, according to sources familiar with the transactions.
Driving the news: McCaffrey has stepped down as CEO and is leaving the company, The Block’s chief revenue officer Bobby Moran confirmed to Axios on Friday. McCaffrey is also stepping down from the board.
- Moran will take over McCaffrey’s role as CEO and will also look to restructure The Block to buy out McCaffrey’s stake in the company, he said.
- McCaffrey has been the sole board member of the company since April 2021. Moran said he will join The Block’s board, which will also add two more seats.
Catch up quickly: The Block was founded in 2018 and McCaffrey became CEO in 2020.
- In April 2021, McCaffrey led a buyout of The Block’s investors, making the firm 100% owned by its employees, with McCaffrey holding a majority stake.
- The company, which is not profitable, had previously raised more than $4 million in convertible notes from venture firms including Greycroft, Pantera, BlockTower Capital and Bloomberg Beta, Axios’ Kia Kokalitcheva reported.
- Revenue, mostly from ads and subscriptions, is expected to be around $20 million this year, a source told Axios.
Details: In early February of last year, McCaffrey began talks with Bankman-Fried about a loan to finance the acquisition, according to two sources familiar with the talks.
- LLCs controlled by McCaffrey received a total of three loans from Alameda, some of which are convertible to equity in the company.
- McCaffrey used the first loan, of $12 million in April 2021, to finance the acquisition of the block, via an LLC named MJMCCAFFREY LLC.
- The second, for $15 million in January 2022, provided capital to the block via an LLC called Lonely Road.
- The third, for $16 million in spring 2022, went to an LLC called Red Sea that McCaffrey used in part to buy the condo in the Bahamas.
- Moran confirmed that these transactions took place.
Between the lines: Moran said McCaffrey first told him about the transactions just before Thanksgiving. He and McCaffrey briefed some members of the company’s senior editorial staff earlier this week.
- The news editors were informed in a general meeting early Friday afternoon.
- “My immediate reaction was anger, frustration and concern for all my colleagues,” Moran said. “Everybody has worked incredibly hard over the years — since before I joined and since I’ve been here — to be fair, accurate and independent in coverage and thought this would call that into question. And that’s frustrating.”
The news came as a shock to The Block’s editorial leadership, who sources say are livid about McCaffrey’s failure to disclose such a close and critical financial partnership with Bankman-Fried and Alameda, especially as they continue to cover the fallout from FTX’s collapse.
- The site’s news director Frank Chaparro interviewed Bankman-Fried for the company’s podcast on Monday.
- Its VP of research, Larry Cermak, on Tuesday circulated a list he compiled hundreds of investments made by Alameda that had been reported by the Financial Times.
- Two of the loans from Alameda to McCaffrey’s LLCs are on the list. Cermak said he did not know the LLCs were connected to McCaffrey when he circulated the list 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 complete discretion to do our jobs,” Cermak said.
- “I’m proud of the work our reporters have done, especially covering the fallout from the FTX implosion,” said The Block’s Editor-in-Chief Sarah Kopit. “In my time, Mike has never had any undue influence on the newsroom. We have always been completely independent.”
The big picture: The Block has never disclosed the financial support of Bankman-Fried’s Alameda Research, or that McCaffrey-controlled LLCs received loans from Alameda.
- On its disclosure page, The Block writes, “it is imperative that The Block be completely transparent about our own financial holdings to avoid any apparent bias or impropriety. The most valuable asset that we have and strive to earn back every day is our readers’ trust. “
What’s next: Moran said all senior executives will remain with the organization and the company will continue to operate and publish.