Earlier quoted context omitted.
I'm curious; what law was being broken, exactly?
Breaking fiduciary duty would be the first that comes to my mind. Previous user took a very huge risk. I've seen similar stuff happen, you can get sued (along whoever told you, but you need proof) just for the sake of making an example in front of the rest of the company.
Also, still it is not illegal. Just that the shareholders need to sue him to matter at all.