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Originally published Saturday, February 19, 2011 at 10:05 PM

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'Terrorist-catcher' deals land government in hot seat

A government contractor made extraordinary claims about technology he supposedly invented, saying he could thwart terrorists.

The New York Times

WASHINGTON — For eight years, government officials turned to Dennis Montgomery, a California computer programmer, for eye-popping technology that he said could catch terrorists. Now, federal officials are going to great lengths to ensure that his dealings with the federal government stay secret.

The Justice Department, which in the past few months has gotten protective orders from two federal judges keeping details of the technology out of court, says it is guarding state secrets. But others involved in the case say the government is trying to avoid embarrassment over evidence that Montgomery bamboozled federal officials.

A onetime biomedical technician with a penchant for gambling, Montgomery is at the center of a tale that features terrorism scares, backing from prominent Republicans, backdoor deal-making and fantastic-sounding computer technology.

Interviews with more than two dozen current and former officials and business associates and a review of documents show that Montgomery and his associates received more than $20 million in government contracts by claiming software he had developed could help stop al-Qaida's next attack on the United States.

But the technology appears to have been a hoax, and a series of government agencies, including the CIA and the Air Force, missed the warning signs, the records and interviews show.

Montgomery's former lawyer, Michael Flynn, says he believes the administration has been shutting off scrutiny of Montgomery's business for fear of revealing that the government was duped. "The Justice Department is trying to cover this up," Flynn said. "If this unravels, all of the evidence, all of the phony terror alerts and all the embarrassment comes up publicly, too."

Justice Department officials declined to discuss the government's dealings with Montgomery, 57, who is in bankruptcy and living outside Palm Springs, Calif. He is about to go on trial in Las Vegas on unrelated charges of trying to pass $1.8 million in bad checks at casinos. He has not been charged with wrongdoing in the federal contracts. He and his current lawyer declined to comment.

The computer codes he patented — codes he claimed, among other things, could find terrorist plots hidden in broadcasts of the Arab network Al-Jazeera; identify terrorists from Predator drone videos; and detect noise from hostile submarines — prompted an international false alarm that led President George W. Bush to order airliners to turn around over the Atlantic in 2003.

The codes led to dead ends in connection with a 2006 terrorism plot in Britain. And they were used by counterterrorism officials to respond to a bogus Somali terrorism plot on the day of President Obama's inauguration, according to previously undisclosed documents.

CIA officials came to believe that Montgomery's technology was fake in 2003, but their conclusions apparently were not relayed to the military's Special Operations Command, which had contracted with his firm. In 2006, FBI investigators were told by co-workers of Montgomery that he had repeatedly doctored test results at presentations for government officials. But Montgomery landed more business.

In 2009, the Air Force approved a $3 million deal for his technology, even though a contracting officer acknowledged other agencies were skeptical about the software, according to e-mails.

Montgomery's alliance with the government would prove a boon to a small company, eTreppid Technologies, that he helped found in 1998.

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He and his partner — a Nevada investor, Warren Trepp — hoped to colorize movies by using a technology Montgomery claimed he had invented that identified patterns and isolated images. Hollywood had little interest, but in 2002, the company found other customers.

With the help of Rep. Jim Gibbons, a Republican who would become Nevada's governor and was a longtime friend of Trepp's, the company won the attention of federal intelligence officials. It did so with a remarkable claim: Montgomery had found coded messages hidden in broadcasts by Al-Jazeera, and his technology could decipher them to identify specific threats.

The software so excited CIA officials that, for a few months at least, it was considered "the most important, most sensitive" intelligence tool the agency had, according to a former agency official, who like several others would speak only on the condition of anonymity.

ETreppid was soon awarded almost $10 million in contracts with the military's Special Operations Command and the Air Force.

In December 2003, Montgomery reported that hidden in the crawl bars broadcast by Al-Jazeera, someone had planted information about specific U.S.-bound flights from Britain, France and Mexico that were hijacking targets.

CIA officials rushed the information to Bush, who ordered those flights to be turned around or grounded before they could enter U.S. airspace. "The intelligence people were telling us this was real and credible, and we had to do something to act on it," said Asa Hutchinson, who oversaw federal aviation safety at the time.

French officials, upset their planes were being grounded, commissioned a study that concluded the technology was a fabrication. Presented with the findings soon after the 2003 episode, Bush administration officials began to suspect "we got played," a former counterterrorism official said.

A falling-out between Montgomery and Trepp in 2006 led to a series of lawsuits, which worried intelligence officials.

The Bush administration said some classified details about the use of Montgomery's software were a "state secret" that could cause grave harm if disclosed in court.

In fall 2010, federal judges in Montana and Nevada who are overseeing several of the lawsuits issued protective orders shielding certain classified material.

After the split with Trepp, Montgomery found a new backer: Edra Blixseth, a onetime billionaire who with her former husband had run the exclusive Yellowstone Club in Montana.

Hoping to win more government money, Blixseth turned to some influential friends, such as Conrad Burns, then a Republican senator from Montana. Burns was among those who became minority stakeholders in the venture, Blxware, based in Bellevue, Wash.

By late 2008, Montgomery's company still had an ally at the Air Force, which began negotiating a $3 million contract with Blxware.

In e-mails to Montgomery and other company officials, an Air Force contracting officer, Joseph Liberatore, described himself as one of the "believers" in the technology, despite skepticism from the CIA and problems with the no-bid contract. If other agencies examined the deal, he said in a December 2008 e-mail, "we are all toast."

The Air Force declined to make Liberatore available for comment.

In May 2009, the Air Force canceled the contract.

At Montgomery's deposition in November, when asked if his software was a "complete fraud," he said, "I'm going to assert my right under the Fifth Amendment."

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