Dec 9, 2022 - Economy

Exclusive: SBF secretly funded crypto news site

Photo illustration of Sam Bankman-Fried against a background of The Block logos

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 funneled to The Block's CEO from the disgraced Sam Bankman-Fried's cryptocurrency trading firm, sources told Axios.

Why it matters: The payments, which employees of The Block were previously unaware of, 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 an apartment in the Bahamas for Block CEO Michael McCaffrey, according to sources familiar with the transactions.

Driving the news: McCaffrey has resigned 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 its 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 for the company since April 2021. Moran said he will join The Block's board, which will also add two more seats.

Catch up quick: 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 isn't profitable, had previously raised over $4 million across convertible notes from venture 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 of last year, McCaffrey began talks with Bankman-Fried about a loan to finance the buyout, according to two sources familiar with the conversations.

  • LLCs controlled by McCaffrey received a total of three loans from Alameda, some of which may be convertible into equity in the company by the LLCs.
  • McCaffrey used the first loan, for $12 million in April 2021, to fund the buyout of the Block, via an LLC named MJMCCAFFREY LLC.
  • The second, for $15 million in Jan. 2022, provided capital for the Block via an LLC named Lonely Road.
  • The third, for $16 million in spring of 2022, went to an LLC named Red Sea that McCaffrey used, in part, to buy the Bahamas apartment.
  • Moran confirmed these transactions took place.

Between the lines: Moran said McCaffrey first told him about the transactions just before Thanksgiving. He and McCaffrey briefed a few members of the company's senior editorial team earlier this week.

  • The newsroom was 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 before I joined and since I've been here — to be fair, accurate and independent in their 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 now as they continue to cover the fallout of 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, Tuesday circulated a list he compiled of 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 didn’t know the LLCs were tied 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 journalists 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've always been completely independent."

The big picture: No disclosure has ever been made by The Block of the financial support 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 is fully transparent about our own financial holdings so as to avoid any appearance of bias or impropriety. The most valuable asset that we hold and strive to earn again every day is our reader's trust."

What's next: Moran said all of the senior leaders are staying with the organization and the company will continue to operate and publish.

Editor's note: This story has been updated to clarify who would own equity in the Block following any conversion of loans to McCaffrey's LLCs.

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