What To Do When Law Enforcement Knocks On The Door Of Your Portfolio Company With A Search Warrant


Most venture capitalists live in a world far removed from the world of law enforcement. Sure, many have read Tom Wolfe's "Bonfire of the Vanities," in which a Manhattan investment banker takes a wrong turn and ends up prosecuted for a hit-and-run. And the nightly news and Wall Street Journal often feature the occasional "perp walk" of some unfortunate executive. But most VC's likely think that they are unlikely to encounter the guys (and gals) with badges and guns anytime soon.

But think again. The latest fad in white collar law enforcement is deploying the tools typically associated with drugs and organized crime - notably search warrants and wiretaps - to investigate white collar crime, as was done in the "Galleon" and "expert network" insider trading cases, among others. Exploring all the ways in which these practices might affect the VC community is beyond the scope of this short article, so I'll focus on what is probably the most likely scenario: you serve on the Board of a portfolio company and get a panicked call from the CEO at 7:30 am saying that a bunch of people in windbreakers have shown up at the company with a search warrant. What to do next?

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