Crypto: Can Readers Trust Reporting About the Industry?

Founded in 2018, The Block is a 160-employee New York-based media outlet with about $20 million in annual revenue that claims it covers news about the crypto industry independently. But it turns out that The Block had secretly received $43 million from one of the firms it has covered since 2019.

That firm is none other than FTX Trading Ltd., the embattled Bahamas-based crypto derivatives exchange founded and managed by the high-profile fallen “rock star” entrepreneur, Sam Bankman-Fried. It filed for bankruptcy protection in November 2022. The exchange’s valuation had reached $32 billion before its spectacular implosion.

Known within the industry as SBF, Bankman-Fried had been extradited to the United States five weeks later and faces charges for a long list of criminal offenses.

Deceptive Editorial Fraud at The Block

It’s generally considered urgent within the media industry that outlets must disclose conflicts of interest immediately when they emerge. Even the mere semblance of such conflicts can damage a media company’s brand by destroying the audience’s trust in that outlet’s credibility, fairness, and impartiality.

This is why at BSchools we publish lengthy disclaimers at the bottom of any of our articles that might be interpreted by readers as providing compelling reasons supporting a particular investment. And it’s challenging to imagine how any media firm’s chief executive like The Block’s CEO Michael McCaffrey could have possibly overstepped those best practices honored for decades throughout the industry. What on earth was he thinking?

In this case, the huge loans suggest deceptive editorial fraud, casting tremendous doubt on The Block’s four years of coverage of FTX and Bankman-Fried. In part, that’s because not all that funding defrayed the high costs of this unprofitable startup, which was apparently in financial trouble even after $4 million worth of venture capital investments. Instead, about $16 million supplied to the publication from Bankman-Fried’s trading firm Alameda Research secretly bought personal residential real estate in the Bahamas for McCaffrey. That’s what those familiar with the transactions told Axios, which broke the story in December 2022.

Axios also confirmed that two previous loans to The Block were pushed through: one for $12 million in 2021 and another for $15 million early in 2022. The funds were shuttled through dummy LLC limited liability holding companies with nondescript names like “Lonely Road” and “Red Sea,” probably to camouflage the transactions.

Except for The Block’s chief financial officer Bobby Moran, Axios could not identify any other employees aware of the loans. Most employees had assumed that McCaffrey had been funding the platform’s operations with help from his father, a wealthy pension fund manager. Instead, McCaffrey used these loans to buy out The Block’s venture capital investors, which left the outlet owned by its employees while providing McCaffrey the majority of the shares of stock.

Nevertheless, it is as yet unclear how much or what kinds of influence McCaffrey might have exerted over The Block’s editorial and research teams. Although a number of managers and editors at the publication have expressed their opinions, no clear evidence-based consensus about McCaffrey’s editorial influence appears to have emerged.

A Single-Member Board of Directors?

Incredibly, even though McCaffrey immediately resigned as CEO, he resisted stepping down from the board of directors. But wait, there’s more: Believe it or not, McCaffrey was the only member of the board—and The Block has operated that way for the past 21 months.

Since when is a single-member board of directors an acceptable way to run a corporation on a long-term basis? It’s not. McCaffrey’s sole directorship bolsters the arguments made by startup experts like Professor Steve Blank of the Stanford Graduate School of Business and Yale School of Management Dean Jeffrey Sonnenfeld, who claim that CEOs in firms started with venture funding frequently exercise way too much power, even after IPOs. That’s because of what Professor Blank characterized in a 2017 Harvard Business Review article as “the extraordinary power imbalance that’s now the norm in Silicon Valley boardrooms.”

Such CEOs usually report to boards with so little power that they can’t constrain anything the CEO does—even if they have more than one member. In this November 2022 CNBC interview, Dean Sonnenfeld cited Elon Musk and Mark Zuckerberg as two other CEOs who operate without sufficient corporate oversight. He told the network,

What’s hard is that somebody has to be able to put the brakes on them and ask them questions. But when they develop one of these emperor-for-life models, then you really don’t have accountability. . .It’s not crazy to talk about Theranos, or WeWork, Groupon, MySpace, WebMD, or Napster—so many companies that fall off the cliff because they didn’t have proper governance.

But like The Block—and like FTX where Bankman-Fried also served as the sole board member—now Twitter also operates with a single-director board. In October 2022, Musk dissolved Twitter’s board and replaced the previous nine members with himself under the terms of the merger agreement governing his takeover. Dean Sonnenfeld said that happened because major players in the deal, like Fidelity Investments, Brookfield Asset Management, and founder and previous chief executive Jack Dorsey didn’t take seats on the board or have voices throughout the transaction. He said the result was that the deal had no oversight—and now Musk has no accountability as Twitter’s new CEO.

As Dean Sonnenfeld also points out, even more curious is that Musk now splits his work week between six companies. The five others include Tesla, SpaceX, Neuralink, the Boring Company, and SolarCity/Tesla Energy. This means that on average, each of these firms will receive not much more than an hour of his attention each day during business hours, and only about 17 percent of his time overall. In other words, Musk will, on average, only spend 6.4 hours a week running Twitter, and as with McCaffrey and Bankman-Fried, no other board members exist who might provide checks and balances on Musk’s edicts.

Outspoken Editors React

Axios also reported that The Block’s editorial leadership was livid when they heard the news. Some of them reacted on social media irately, suggesting they might have even been experiencing breakdowns at the time. For example, “Fintech Frank,” the publication’s news director Frank Chaparro, reacted with shock and anguish on Twitter, and as of this writing still hasn’t removed any of those incendiary tweets. Here’s a sample of what he wrote that day:

I’m absolutely gutted by this news, which was briefed to the company this afternoon. Underpinning my shock are feelings of utter disgust and betrayal by Mike’s actions, greed, lack of disclosure. He’s literal scum. He kept every single one of us in the dark…What I can say to you all as he steps down as CEO is that I’m angry and hurt…I’ve never been more angry or sad in my entire life. In a state of despair.

Not surprisingly, some editors at competing publications reacted in outspoken ways as well. They include Nelson Wang of CoinDesk’s “Breakdown” podcast, who thought it seemed inappropriate that McCaffrey would tweet about how “personally painful” that his resignation had felt. “Editor’s note: Don’t talk about your personal pain when you’ve been involved in deceptive fraud,” said Wang. He continued,

That wasn’t the only option. Deceptively taking money from a crypto billionaire for your crypto journalism site—that was the option that allowed you to do what YOU wanted. Those are not the same things.

What Did SBF Want?

But why would Bankman-Fried approve these loans, and what did he want in exchange? Surely he’d never approve all these payments without expecting something in return. What were his motivations?

Wang believes Bankman-Fried always wanted to own the media establishment. Either he was spending tens of millions of dollars to get short-term preferential coverage, or he had granted all these loans that he could later call in to have an option to buy out the actual media apparatus, if relevant and at a time that suited him.

“Given the extensiveness of Sam’s media judgments, I don’t think it’s insane to think that’s more like what he was looking for,” says Wang. On balance, Wang concludes that Bankman-Fried didn’t care that much about favorable short-term coverage, but instead wanted to own The Block outright on a long-term basis.

What’s Next for The Block ?

With Bankman-Fried out of the picture, it’s unclear what might be next for The Block. For one thing, McCaffrey appears to be still pushing back against giving up his majority stake of the stock ownership. Resigning from the board seems like another action that he’s resisting.

Whether McCaffrey cuts all ties with the firm or not, it’s difficult to envision how a media outlet that’s fighting the notoriety of a bribed CEO for as long as two years can continue as an independent going concern on a long-term basis. Maybe there’s some precedent by a legacy or new media firm somewhere across America during the past century for such a turnaround. However, our research could not identify such a reversal for this report.