Earlier quoted context omitted.
About a decade back, I was at an event that had an FBI employee presenting. During his presentation, he had mentioned a story of a sys admin who had been arrested for taking a hashed PW database in his company, comparing the hashes against known compromised one's (perhaps from haveibeenpwned?), and forced a password reset for everyone who had reused a password that had separately been compromised and sent an email to…
The FBI feeds data into Troy Hunt's database and FBI Director Christopher Wray gave Troy Hunt a medal for his work [1]. The Open Web Application Security Project's Application Security Verification Standard recommends that you do a hashed password check [2]. For bigger companies, sure, go talk to legal, but for young startups, my feeling is it's not worth the $200 or whatever your counsel will charge to say it's ok.…
That said I struggle to believe the sys admin had competent representation.