Why wasn't the employee terminated immediately when the behavior became apparent? That would certainly qualify as termination with cause.
I know you sweep their behavior under the rug of "mental illness," which by definition means they weren't thinking clearly, but why would anyone possibly commit career suicide like that? Were they trying to extort you for money? Why would they do that for a paltry 30% of their salary when they could've just stayed with the company for 4 months instead?
I think what I dislike about this comment is that it comes across as almost bragging about bankrupting someone with a mental condition: "Right before it bankrupted them...guess what stoped happening. We dropped it without taking a cent. Hasn't been a problem."