This is actually a chance to set your startup's atmosphere for years to come – you should actually send the guy a gift basket. (1) Talk to the reporting employe

This is actually a chance to set your startup's atmosphere for years to come – you should actually send the guy a gift basket. (1) Talk to the reporting employee to explain why (2) has to happen. (2) Fire him, for cause, publically, immediately. (3) Deal with any consequences of not talking to a lawyer first. If you're at the scale where a wrongful termination suit isn't an existential risk to the company, you'll get bonus points if you actually lose in court. As an employee, I'd work on weekends & nights for a boss who has a well-adjusted moral compass and will sometimes disregard business interests to act on it.