He plays peek-a-boo with the passwords and then tries to play Lord God of the network, as if he answered to no one. This guys gives other sysadmins a bad name. He was a Class A jerk. Perhaps he got bad advice from someone, but odds are very high his arrogance brought him down. Nothing new - it happens in all venues (entertainment, sports, business, etc.).
I also blame management for letting it get to this point. It should never have been to the point where only he knew the passwords. They should be reprimanded as well unless he unilaterally changed them without their knowledge. Then he definitely deserves to be punished. What a jerk.