Hahaha!
l0pht Crack is a brute forcing program, my guess is that he forgot the password to some account or folder, and has tried to recover it using this program. He could also have used it for testing how secure some of the other users' accounts passwords are. It's not illegal using it like this, because he's the system admin
You would probably get in trouble if you reported him :P Wtf are you doing in his folder anyway h4xx0r3r?!?@?#