Photo illustration: Sarah Grillo/Axios. Photo: Eva Marie Uzcategui/Bloomberg via Getty Images
The Block, a media outlet that claims to independently report crypto news, has been secretly funded for over a year with funds channeled from the disgraced Sam Bankman-Fried’s cryptocurrency trading firm to The Block’s CEO, sources told Axios.
Why it matters: The payments, previously unknown to The Block staff, could undermine the news outlet’s credibility and challenge its coverage of Bankman-Fried, the now-bankrupt FTX, and Bankman-Fried’s trading company Alameda Research.
- A portion of Alameda’s $16 million in funding was used in part to fund the purchase of an apartment in the Bahamas for Block CEO Michael McCaffrey, according to sources familiar with the transactions.
Push 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 resigning from his board.
- Moran will assume McCaffrey’s role as CEO and also seek to restructure The Block to buy out McCaffrey’s stake in the company, he said.
- McCaffrey has served as the company’s sole director since April 2021. Moran said he will join The Block’s board, which will also add two more seats.
Catch up fast: The Block was founded in 2018 and McCaffrey became CEO in 2020.
- In April 2021, McCaffrey led a buyout by The Block’s investors, making the company 100% employee-owned, with McCaffrey holding a majority stake.
- The company, which is not profitable, had previously raised over $4 million through convertible bonds 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 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 may be convertible into company stock.
- McCaffrey used the first $12 million loan in April 2021 to fund the acquisition of the block through an LLC named MJMCCAFFREY LLC.
- The second, for $15 million in January 2022, provided capital for the block through an LLC called Lonely Road.
- The third went to an LLC called Red Sea for $16 million in spring 2022, which McCaffrey used in part to purchase the Bahamas condo.
- 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 team earlier this week.
- The editors were informed in an all-hands meeting early Friday afternoon.
- “My immediate reaction was anger, frustration and concern for all my colleagues,” Moran said. “Everyone has worked incredibly hard over the years – since I joined and since I’ve been here – to be fair, accurate and independent in their reporting and felt this would call that into question. And that’s frustrating.”
The news came as a shock to The Block’s editorial board, who sources say are furious at McCaffrey’s failure to disclose such a close and crucial financial partnership with Bankman-Fried and Alameda, especially now as they continue to report on the fallout from FTX’s collapse.
- The site’s news director, Frank Chaparro, interviewed Bankman-Fried for the company’s podcast Monday.
- His vice president of research, Larry Cermak, Tuesday circulated a list He compiled hundreds of Alameda investments that the Financial Times had reported on.
- Two of Alameda’s loans to McCaffrey’s LLCs are on the list. Cermak said he was unaware that the LLCs were affiliated with McCaffrey when he tweeted the list.
- “Mike has never asked me or anyone in research to treat FTX or SBF in any particular way. Or anyone else. We had complete discretion to do our job,” Cermak said.
- “I’m proud of the work our journalists are doing, particularly covering the aftermath of the FTX implosion,” said Sarah Kopit, Editor-in-Chief of The Block. “In my time, Mike has never had an undue influence on the editorial board. We have always been completely independent.”
The big picture: The Block has never disclosed financial backing from Bankman-Fried’s Alameda Research or that McCaffrey-controlled LLCs received loans from Alameda.
- On its disclosure page, The Block writes, “It is critical that The Block provide full transparency on our own financial holdings to avoid any appearance of bias or impropriety on the trust of our readers.”
What’s next: Moran said all senior executives will remain with the organization and the company will continue to operate and publish.