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In this episode of the 10,000 Startups podcast, the discussion revolves around the legal troubles that startup companies face, focusing primarily on issues related to due diligence, potential fraud, and the missteps that can lead to significant repercussions during financing or acquisition processes. The guest, Sherine Ebadi, Managing Director of Forensic Investigations and Intelligence at Kroll, shares her insights drawn from years of experience as a forensic investigator and a former FBI agent.

The conversation kicks off by highlighting recent high-profile fraud cases involving startups such as Theranos and FTX. Despite the staggering consequences, the behavior of founders committing such fraud often stems from an exaggerated sense of confidence in their capabilities, which can lead to reckless decisions when facing existential setbacks. Ibadi points out that many founders begin with innovative ideas but may take a downward spiral into unethical practices when encountering challenges.

The discussion then shifts to the importance of due diligence in startups and the preliminary triggers that lead to investigations, such as anomalies in financial records or whistleblower alerts. Ibadi suggests that many startups lack proper financial controls and governance, making them susceptible to fraud. She emphasizes the necessity for startups to establish robust financial frameworks early on, as poor governance can spiral into significant troubles as the company grows.

Moreover, the conversation underscores the crucial aspect of trust and transparency in investor relations. Founders frequently rely on their close circle, including reputable board members, to foster trust among potential investors, which can lead to less scrutiny over financial practices. Understanding the nuances of the business and being able to articulate complexities in simple terms are fundamental in preventing instances of fraud.

Finally, startups and investors alike should discern between legitimate businesses and potential fraudsters by conducting comprehensive due diligence and fostering open communication. Both parties agree that while mistakes can be rectified, once fraud is involved, it can tarnish reputations permanently.

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A ruling on the FDA laboratory test rule

San Francisco sues another gig economy business for employee misclassification

California PAGA claims

The DOJ disbands its crypto currency unit

A new Federal data security rule

The Tax Cuts and Jobs Act extension moves forward

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Nuan Zhang is a venture capitalist with a diverse background in the technology and investment sectors. Nuan is responsible for sourcing and evaluating investment opportunities, conducting due diligence, and providing strategic guidance to portfolio companies. She works closely with founders to help them scale their businesses and achieve sustainable growth.

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We discuss the new tariffs imposed by the US government, including a tariff on steel and aluminum products from all countries, as well as additional tariffs on imports from China and a partial suspension of tariffs on imports from Canada and Mexico. The experts, Ed Lebow and Colin Cox from the law firm Haynes and Boone, provide an overview of how tariffs work, who pays them, and the potential impacts on businesses and consumers. They also discuss the retaliatory tariffs imposed by other countries in response to the US actions, the challenges around determining product origins, and the strategies companies can use to navigate the new tariff landscape. #tariff

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Neil Wertlieb is the former General Counsel and a retired partner from Milbank LLP, a leading international law firm, where he worked for over two decades, from 1995 to 2016 (as Partner) and from 2022 to 2024 (as the firm’s first-ever General Counsel). Based in Milbank’s Los Angeles office, Mr. Wertlieb’s legal practice focused on business transactions, primarily acquisitions, securities offerings and restructurings. Mr. Wertlieb is an Adjunct Professor at UCLA School of Law, where (since 2002) he teaches a transaction skills course of his own design, which includes deal-making, negotiation, contract drafting and ethics. Mr. Wertlieb is also Senior Advisor, Milbank@Harvard at Harvard Law School Executive Education, a professional development education program that provides attorneys with immersive week-long programs to build leadership and business skills. The Milbank@Harvard curriculum includes intensive, interactive courses on finance and accounting, leadership and team management, strategy, marketing, negotiations and macroeconomics. Mr. Wertlieb is also a Visiting Lecturer at UC Berkeley School of Law, where he teaches transaction skills. He has also taught similar courses at USC Gould School of Law, UC Irvine School of Law, and Santa Clara University School of Law. For more information about Mr. Wertlieb’s transaction skills course, click here. https://wertlieblaw.com/about/