In doing so, they signed on with Silicon Valley’s moneyed elite to be part of CrunchFund, the new enterprise run by the famously influential and blustering Mr. Arrington. The coverage of technology has spawned many innovations in the news business, but now it seems to be the source of a particularly problematic one.

At this point, it seems that AOL executives would open up a lemonade stand in front of their headquarters if they thought it would help their bottom line. But the idea of a news site that covers every aspect of nascent tech companies sharing a brand name and founder with a venture capital firm financing these same companies seems almost comically over the line.

“TechCrunch is a different property and they have different standards,” Tim Armstrong, AOL’s chief executive, said Thursday afternoon when CrunchFund was announced. “We have a traditional understanding of journalism with the exception of TechCrunch, which is different but is transparent about it.”

It was a breathtaking admission of TechCrunch’s exceptionalism, and news of Mr. Arrington’s audacious caper roiled the blogosphere all day. At midnight on Thursday I reached Arianna Huffington, head of AOL’s editorial operations, who was traveling in Brazil. Things seemed to have changed in only a few hours.

“Michael has stepped down,” to become a venture capitalist, she said, “and is no longer on the editorial payroll effective immediately.” She added that he could continue to write — Mr. Arrington is a prolific, forceful voice on technology matters — but as an unpaid blogger. Gee, I said to Ms. Huffington, I know we are in a bold new epoch of technology journalism, but the whole thing still seems, well, naughty.

It’s not the usual case of conflict of interest — someone being sent a shiny new gadget and writing about how spiffy it is. This time, there are tens of millions of dollars in play. Coverage in TechCrunch can make or break a start-up, and what about those companies that are not F.O.M.’s (Friends of Mike)?

“David, honestly, don’t be silly,” she said. “It is very, very clear that they are distinct entities and Michael will have no influence on coverage.”

Really? It’s worth pointing out that earlier that day, Mr. Arrington told my colleague Claire Cain Miller, “I am TechCrunch and TechCrunch is me.” It’s now hard to know whether AOL is Mr. Arrington’s partner, client, employer or banker.

AOL, challenged on both business and editorial fronts, has enabled Mr. Arrington at every turn, allowing him to bestow his blunt brand of editorial favor or wrath as he saw fit.

When he turned his withering guns on Engadget, a sibling site at AOL, executives looked the other way even as most of the people at Engadget left. When he bashed the reputation of Caterina Fake, the well-regarded co-founder of both Flickr and Hunch, for breaking the news of her own start-up (instead of letting him break it), they said nothing. Along the way, he ridiculed the enterprise he worked for with a seemingly endless stream of Twitter posts, all but begging to get fired. He got financed instead.

As business reporters, we are often pressed up against the glass, watching as others take risks, make investments and build companies. We are observers, not players. But the froth and money sloshing around has reached a whole other level, and looks enticing no matter what side of the glass you are on.

Michael Arrington kicked a hole in the glass. A former lawyer and investor who founded TechCrunch in 2005, he told his bosses at AOL in April that he was going to continue to edit the site, but resume investing in some of the companies TechCrunch covered.

E-mail: carr@nytimes.com;

Twitter.com/carr2n

This article has been revised to reflect the following correction:

Correction: September 4, 2011

An earlier version of this article misstated the timing of Michael Arrington’s investment in Milk, a mobile-development lab. A round of funding closed on April 26; the funding did not close on April 1. In addition, the article incorrectly described the disclosure about the investment on Mr. Arrington’s blog, TechCrunch. The investment was disclosed in a post on April 26. It was not the case that there was no disclosure.

Article source: http://feeds.nytimes.com/click.phdo?i=2de2c4a86e6e5a6040338307c10f3640