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Mace's ex-CEO unloads in self-defense

Louis Paolino says he will seek arbitration for more than $4 million in damages for the breach of his employment contract and more than $6 million for defamation of character.

More details have emerged about the rift between Mace Security International Inc. and its CEO that led to his ouster last week for misconduct.

Mace, which is now based in Fort Lauderdale, Fla., but had been in Mount Laurel, terminated Louis D. Paolino Jr. at a special board meeting May 20. In its statement, the maker of personal defense spray and hidden cameras said that Paolino did not follow board  instructions or perform his supervisory duties sufficiently.

A filing Friday with the Securities and Exchange Commission contains Paolino's response to the board's allegations. He told Inquirer staff Bob Fernandez last week that he would fight, and the letter makes it clear he's not going quietly:

The Board's "belief" that I have not followed its instructions or sufficiently performed my supervisory duties is patently false and misleading.

Paolino goes on in the "statement of disagreement" to list areas where he and the board disagreed over disclosure of certain events, including:

... the notice of resignation of key officers of the Digital Media Marketing segment, the changes (or potential changes) in the business plan of the Company as previously established, the change in the overall strategic direction of the company, and the disagreements between management of the Company and its Board of Directors relative to the above.

Paolino writes that he hired his own lawyer (at Greenberg Traurig) to "review and evaluate some of the disclosures and risk factors" in a quarterly financing filing called a Form 10-Q. What happened next?

I forwarded the recommendations of my counsel to the Company on May 14, 2008. Within days of my taking this action and, in blatant violation of corporate law and MSI's by-laws, the other five members of the Board called and held a secret Board meeting without providing me with any notice that it would be held. Decisions were made by the Board in my absence at this unlawful meeting which, in direct retaliation for my intent to make certain disclosures to the shareholders, led to my subsequent wrongful termination.

Mace's board issued "patently false statements defaming my character," Paolino writes.

As he told the Inquirer last week, he will seek arbitration for more than $4 million in damages for the breach of his employment contract. Today's letter adds that he will seek more than $6 million for defamation of character.

But more intriguing is Paolino's statement that he'll file a claim with the federal Labor Department as a whistleblower. Why would he do that? Paolino claims the board was requesting him to take actions "in violation of my obligations under Sarbanes-Oxley." That's the post-Worldcom law governing corporate disclosure and documentation of financial controls by public companies.

So Paolino, the former CEO, is claiming whistleblower status under a law that was passed to clean up the accounting shenanigans of many companies in the late '90s and early '00s. Can a CEO be a whistleblower? We'll find out.

In the meantime, Mace said it disagrees with the statements made by Paolino in his letter and that it "intends to vigorously defend any litigation he initiates."