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The Lawyer is an absolute must at this point. Given that you're now aware of what's going on, it is entirely possible that you have legal responsibilities that you are not aware of to report or otherwise act on the information.Plus a lawyer should know how to phrase this kind of things so it isn't legally extortion/blackmail. (IANAL)

(fix minor phrasing error.)

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Also, if there is anything officially linking you as an officer in the company (you state you were CTO), you could be held partly liable for the tax/wage fraud if you don't report it. (IANAL)

Even if that were not the case, I say report them. You'll be helping the other people in the company that you like by preventing the CEO from walking over them in the future (if the CEO would do it to another officer of the company, they would certainly do it to the rank and file). It will also set an example to other start-up founders not to screw over people they want to employ.

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