Media companies start returning money linked to former CEO of failed cryptocurrency exchange

Some media companies that received money from Sam Bankman-Fried or his foundation have announced plans to return or freeze the cash after Justice Department charges were filed against the cryptocurrency tycoon last week.

The nonprofit news organization ProPublica said Tuesday it would return $1.6 million it received from Bankman-Fried’s family foundation, Building a Stronger Future. The money was part of a $5 million, three-year grant intended to subsidize public health, biosecurity and coronavirus reporting, which the nonprofit said it will find other ways to fund. ProPublica had already suspended the grant in early November, the same day Bankman-Fried’s cryptocurrency exchange, FTX, filed for bankruptcy amid accusations that he misused billions in customers’ funds.

“In light of more recent allegations that some of Bankman-Fried’s gains may have come from fraudulent activities, it does not seem appropriate to keep these funds,” ProPublica co-chief executives Robin Sparkman and Stephen Engelberg wrote in a memo obtained by The Washington Post. Axios first reported the nonprofit’s decision to return the money, which will be placed in a separate account until authorities determine where it should be returned to.

[Murkowski campaign donates money from disgraced cryptocurrency executive]

Several other media companies that took money from Bankman-Fried, or more commonly his family foundation, have faced scrutiny since FTX’s abrupt collapse. Bankman-Fried, who resigned as the company’s chief executive in November, was arrested in the Bahamas last week and is facing extradition to the United States on charges of conspiracy, fraud, money laundering, violating campaign finance laws and other financial crimes.

Vox Media spokeswoman Priyanka Mantha said the digital media company intends to return nearly all of a $200,000 grant from the foundation that was earmarked for a Vox.com vertical called Future Perfect - “if and when a restitution fund is created.” She said Vox has already spent $14,000 of the money, which it received in August to support a reporting project on climate change, global poverty and other societal challenges.

It’s unclear what other beneficiaries plan to do with their funds or how their newsrooms will make up the loss if the money is returned.

A spokesman for the Intercept said the news organization is still evaluating what to do with $500,00 it received in September, which was part of a $4 million grant from Bankman-Fried’s foundation. “At this time, we are still gathering the information we need to make a principled decision in accordance with our mission and values,” spokesman Rodrigo Brandão said Tuesday. (The organization sent a fundraising email last month conveying that the funding’s loss has created “a significant hole in our budget.”)

In a Dec. 2 memo to employees, Semafor co-founder Justin Smith did not disclose how much the media start-up had received from Bankman-Fried personally during a funding round that ended in May, but said, “We accepted this investment in the spirit in which it was offered - to support independent journalism.” He added: “We will await their [investigative authorities’] guidance on appropriate next steps and don’t anticipate any impact on our business.”

A Semafor spokesman said Tuesday that the company has no additional comment.

The Law & Justice Journalism Project, an organization dedicated to improving coverage of the criminal legal system, has also received funding from Bankman-Fried’s foundation, according to Nieman Lab.

Bankman-Fried’s grants to newsrooms were part of a broader pattern of funding, investment and largesse, including about $40 million in political donations he made this cycle, mostly to Democratic-aligned organizations. He gave the cash before fraud accusations came to light, at a time when FTX was widely viewed as one of the more responsible companies in the loosely-regulated cryptocurrency industry.

At the time media companies received grants, “No one seemed to have any doubt that Sam Bankman-Fried had an enormous amount of money,” said veteran media executive Richard Tofel, who recently wrote a blog post asking, “What If Your Donor Turns Out to Be a Crook?”

Chris Roush, dean of Quinnipiac University’s school of communications, argued that media companies should nevertheless promptly return any funds received by Bankman-Fried or his foundation to “avoid any appearance of impropriety.” And he said they should have done more due diligence before taking the money, considering the volatility of the cryptocurrency industry and its lack of financial transparency.

“News organizations, particularly start-ups, need to be as vigilant examining who’s giving them money as they are examining information received from sources,” Roush said.