Palakindia,
If the employee has gone on wrong track by not serving notice period or being stubborn, then you have also not followed the correct path by getting his signature on amount which he did not get under false pretext. Two wrongs can never make it right!
When you say moral support of present employees,its giving a sense that present employees are aware of the current scene very well. How do you expect to employees to behave responsibly or be engaged? present employees can either help or damage your image.
There are many articles available on this site itself which can give you fair idea on retaining employees. Experience letter can never be a guarantee to keep employees "responsible & decent" .There are many ways to prove the experience person carries or what kind of work a person is capable to do, if you do not issue "release letter". If you want your employees to be consistent / performing well then even your management style needs to follow the same! Are your employees having clarity on job expectations? Do they receive timely feedback about their performance? Too many questions to be asked! You could also take help of a professional consultant to direct and guide you/department/ management.
For a quick review do read :
How companies retain high potential workers - Times Of India ,
Retaining High Potential Employees | Strategic Human Resources Management | SHRM India