There is a unique thread at Search Engine Watch Forums where a person describes a case of an in-house SEO that has gone bad.
He said that before he came on to work for a company, they had an in-house SEO. The in-house SEO left to start his or her own SEO practice through his or her blog. So now this SEO is marketing himself through his SEO blog, which is cool.
However, the new SEO said that he "found two separate instances of this person attempting to put hidden links to their own sites in this client's site's code."
He asks how should he handle this. He lists a few different ways to handle this:
(1) Confront the SEO (2) Tell the client about this (3) Publicly tell people about this via a blog or forum
In my opinion, you have no choice but to tell the client about this. Maybe, but highly doubtful, they knew about those links. Then I would bring this evidence to the SEO and ask him why he or she did this. Maybe he or she has a valid reason or maybe it was an honest mistake, yes there can be reasons for this - but I cannot think of any at the moment.
There is no reason to go public with this information at this point. However, if you see the SEO repeatedly using these practices, placing hidden links on client sites, and if the top two methods do not work, then you may have to notify the public. May have to but I would do everything to avoid that.
Forum discussion at Search Engine Watch Forums.