1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA Case No. 15-cv-20782-MARTINEZ/GOODMAN DENNIS MONTGOMERY, Plaintiff, v. JAMES RISEN et al., Defendants. ________________________/ DECLARATION OF JAMES RISENI, James Risen, declare: 1.I am a defendant in the above-captioned action. I make this declaration in s upport of Defendants’ Motion for Summary Judgment and Memorandum in Support. I make the following statements based on my own personal knowledge and, if called as a witness, I could and would testify competently to these facts under oath. 2. I am the author ofPay Any Price: Greed, Power, and Endless War (the “Book”). Defendant Houghton Mifflin Harcourt Publishing Company (“HMH”) published the Book on October 14, 2014. HMH and I entered into a publ ishing agreement to write the Book on November 7, 2013, in which HMH and I agreed that I was an independent contractor. A true and correct copy of the publishing a greement, redacted for highly sensitive and proprietary information, is attached hereto as Exhibit 1. Among other things, Chapter 2 ( the “Chapter”) of the Book is about Plaintiff Dennis L. Montgomery. A true and correct copy of rel evant excerpts of the Book is attached hereto as Exhibit 2. 3.I have reviewed Montgomery’s Amended Co mplaint in this action. 4.I have worked as a journalist for the New York Times in its Washington, D.C. bureau since 1998, where I have won two Pulitzer prizes, the first in 2002, for explanatory reporting as a member of theNew York Times reporting team, and the second for National Case 1:15-cv-20782-JEM Document 203 Entered on FLSD Docket 12/14/2015 Page 1 of 14
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8/20/2019 Montgomery v Risen #203 Risen Decl With Exhibits
21. Further, I relied on, cited, and accurately quoted in the Chapter statements in the
FBI reports that:
Trepp recently learned that Montgomery would require eTreppid employees to
falsify the results of live demonstrations for it’s [sic] customers. Jesse Anderson,a programmer for eTreppid, told Trepp that Montgomery would require Anderson
and Jim Bauder, another eTreppid employee, to go into an office at eTreppid
while Montgomery was out in a nearby field with a toy bazooka to demonstrateeTreppid’s recognition software capabilities. Montgomery instructed Anderson
and Bauder to go into a room and wait to hear a noise on their cell phone and then
instructed them to press a button on a computer keyboard that would display an
image of a bazooka on the computer screen viewed by the customers, includingDepartment of Defense employees. Trepp advised that the Department of
Defense employees were at the demonstration to make a judgment regarding the
purchase of this technology.
(Ex. 15 at DEFS002219.) I relied on statements by other employees who confirmed these
accounts in their interviews with the FBI. ( Id. at DEFS002342, DEFS002343.)
22. For the New York Times Article and the Chapter, I relied on the November 18,
2010 deposition of Dennis L. Montgomery in In re Dennis & Kathleen Montgomery, No. 10-bk-
18510 (Bankr. C.D. Cal.), a true and correct copy of excerpts of which is attached hereto as
Exhibit 16. I relied on the statement by Michael Flynn, Montgomery’s former lawyer, to
Montgomery: “I know you conned me and you conned the U.S. Government.... You’re a
computer hacker and you’re a fraud, Mr. Montgomery.” (Ex. 16, Tr. 230:2-11.) I relied on
Montgomery’s testimony in his deposition in which the attorney asked if his software was a
“complete fraud” and he answered, “I’m going to assert my right under the Fifth Amendment.”
( Id. Tr. 194:8-11.) I also relied on a number of other instances in which Montgomery took the
Fifth in the deposition. ( Id. Tr. 57:12-58:3, 60:14-17, 80:16-81:7, 188:15-191:7, 193:20-194:20,
199:24-201:9, 273:19-21).
23.
For the New York Times Article and the Chapter, I relied on Flynn’s affidavit
stating that, “Based upon personal knowledge, and information and belief, Blxware possesses no
marketable technology, the technology as represented does not exist[.]” A true and correct copy
Case 1:15-cv-20782-JEM Document 203 Entered on FLSD Docket 12/14/2015 Page 8 of 14
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government sources and other sources close to Montgomery or familiar with his work, including
but not limited to those outlined below. For the Chapter, I also relied on interviews I conducted
with Montgomery.
27.
For the New York Times Article and the Chapter, in or around January or
February 2011, October 4, 2011, and February 2014, I interviewed William D. Murray, who was
CIA Paris Station Chief in late 2003 when Montgomery gave purported intelligence gleaned
from Al Jazeera broadcasts to the CIA. I referred to Murray in the Chapter as a “former senior
CIA official” or one of the “former CIA officials.” ( Id .) (Chapter at 32-33, 39-47.) Murray told
me, and I relied on him, for the following facts, which accurately reflect what Murray told me
when I interviewed him:
a. Murray was the CIA Paris station chief at the time. Murray was talking to
Tyler Drumheller, the CIA European Division Chief at the time, about the purported threat information coming from a technology company that said
it detected and decrypted hidden Al Qaeda codes on Al Jazeera television.
Drumheller believed it was crazy, but that it was becoming the mostimportant and sensitive intelligence at CIA headquarters. The problem
was that this threat information from this supposed technology company
was coming in so fast, the CIA was not vetting it. So the intelligencewould come in to the CIA, then CIA personnel would take it to George
Tenet, then CIA Director, and then Tenet would take it right to President
George W. Bush. The U.S. government grounded flights based on this
threat information. The French authorities wanted to know the source ofthe information, because their Air France flights were being affected.
b. Murray was talking to French intelligence, and French intelligence hired a
high technology company of their own to look at the Al Jazeera
broadcasts. Murray visited the company in France, and the head of thecompany said the company would conduct the analysis. Then the French
technology company came back a few days later, and said they could not
find anything in the Al Jazeera broadcasts. They said there are a couplekinds of bar codes, and there are not enough pixels there for either one.
The French technology company said there is just nothing there. Therewas no way there were hidden messages in the Al Jazeera broadcast. Itwas not real.
c. The CIA officials who were pushing this, from the CIA Directorate of
Science and Technology, were Donald Kerr and Edward Charbonneau.
Murray did not think they were doing it because they were in on it oranything like that. Murray believed they were caught up in trying to get
this intelligence. And Tenet was letting it go straight to President Bush
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February 19, 2011
Hiding Details of Dubious Deal,U.S. Invokes National Security By ERIC LICHTBLAU and JAMES RISEN
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 want nothing to do
with him and are going to extraordinary lengths to ensure that his dealings with
Washington stay secret.
The Justice Department, which in the last few months has gotten protective
orders from two federal judges keeping details of the technology out of court,
says it is guarding state secrets that would threaten national security if
disclosed. But others involved in the case say that what the government is
trying to avoid is public embarrassment over evidence that Mr. Montgomery
bamboozled federal officials.
A onetime biomedical technician with a penchant for gambling, Mr.
Montgomery is at the center of a tale that features terrorism scares, secret
White House briefings, 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 Mr. Montgomery and his
associates received more than $20 million in government contracts by claimingthat software he had developed could help stop Al Qaeda’s next attack on the
United States. But the technology appears to have been a hoax, and a series of
government agencies, including the Central Intelligence Agency and the Air
Force, repeatedly missed the warning signs, the records and interviews show.
Mr. Montgomery’s former lawyer, Michael Flynn — who now describes Mr.
Montgomery as a “con man” — says he believes that the administration has
Page 1 of 7Government Tries to Keep Secret What Many Consider a Fraud - NYTime...
been shutting off scrutiny of Mr. Montgomery’s business for fear of revealing
that the government has been duped.
“The Justice Department is trying to cover this up,” Mr. Flynn said. “If this
unravels, all of the evidence, all of the phony terror alerts and all the
embarrassment comes up publicly, too. The government knew this technology was bogus, but these guys got paid millions for it.”
Justice Department officials declined to discuss the government’s dealings with
Mr. Montgomery, 57, who is in bankruptcy and living outside Palm Springs,
Calif. Mr. Montgomery is about to go on trial in Las Vegas on unrelated charges
of trying to pass $1.8 million in bad checks at casinos, but he has not been
charged with wrongdoing in the federal contracts, nor has the government tried
to get back any of the money it paid. He and his current lawyer declined to
comment.
The software he patented — which 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 Ocean in 2003.
The software led to dead ends in connection with a 2006 terrorism plot in
Britain. And they were used by counterterrorism officials to respond to a bogusSomali terrorism plot on the day of President Obama’s inauguration, according
to previously undisclosed documents.
‘It Wasn’t Real’
“Dennis would always say, ‘My technology is real, and it’s worth a fortune,’ ”
recounted Steve Crisman, a filmmaker who oversaw business operations for
Mr. Montgomery and a partner until a few years ago. “In the end, I’m convinced
it wasn’t real.”
Government officials, with billions of dollars in new counterterrorism financing
after Sept. 11, eagerly embraced the promise of new tools against militants.
C.I.A. officials, though, came to believe that Mr. Montgomery’s technology was
fake in 2003, but their conclusions apparently were not relayed to the military’s
Page 2 of 7Government Tries to Keep Secret What Many Consider a Fraud - NYTime...
Special Operations Command, which had contracted with his firm. In 2006,
F.B.I. investigators were told by co-workers of Mr. Montgomery that he had
repeatedly doctored test results at presentations for government officials. But
Mr. Montgomery still landed more business.
In 2009, the Air Force approved a $3 million deal for his technology, eventhough a contracting officer acknowledged that other agencies were skeptical
about the software, according to e-mails obtained by The New York Times.
Hints of fraud by Mr. Montgomery, previously raised by Bloomberg Markets
and Playboy, provide a cautionary tale about the pitfalls of government
contracting. A Pentagon study in January found that it had paid $285 billion in
three years to more than 120 contractors accused of fraud or wrongdoing.
“We’ve seen so many folks with a really great idea, who truly believe theirtechnology is a breakthrough, but it turns out not to be,” said Gen. Victor E.
Renuart Jr. of the Air Force, who retired last year as the commander of the
military’s Northern Command. Mr. Montgomery described himself a few years
ago in a sworn court statement as a patriotic scientist who gave the government
his software “to stop terrorist attacks and save American lives.” His alliance
with the government, at least, would prove a boon to a small company,
eTreppidTechnologies, that he helped found in 1998.
He and his partner — a Nevada investor, Warren Trepp, who had been a toptrader for the junk-bond king Michael Milken — hoped to colorize movies by
using a technology Mr. 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 Representative Jim Gibbons, a Republican who would become
Nevada’s governor and was a longtime friend of Mr. Trepp’s, the company won
the attention of intelligence officials in Washington. It did so with a remarkable
claim: Mr. 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 C.I.A. 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 because the technology was classified.
Page 3 of 7Government Tries to Keep Secret What Many Consider a Fraud - NYTime...
ETreppid was soon awarded almost $10 million in contracts with the military’s
Special Operations Command and the Air Force, which were interested in
software that Mr. Montgomery promised could identify human and other
targets from videos on Predator drones.
In December 2003, Mr. Montgomery reported alarming news: hidden in thecrawl bars broadcast by Al Jazeera, someone had planted information about
specific American-bound flights from Britain, France and Mexico that were
hijacking targets.
C.I.A. officials rushed the information to Mr. Bush, who ordered those flights to
be turned around or grounded before they could enter American airspace.
“The intelligence people were telling us this was real and credible, and we had
to do something to act on it,” recalled Asa Hutchinson, who oversaw federalaviation safety at the time. Senior administration officials even talked about
shooting down planes identified as targets because they feared that supposed
hijackers would use the planes to attack the United States, according to a
former senior intelligence official who was at a meeting where the idea was
discussed. The official later called the idea of firing on the planes “crazy.”
French officials, upset that their planes were being grounded, commissioned a
secret study concluding that the technology was a fabrication. Presented with
the findings soon after the 2003 episode, Bush administration officials began tosuspect that “we got played,” a former counterterrorism official said.
The C.I.A. never did an assessment to determine how a ruse had turned into a
full-blown international incident, officials said, nor was anyone held
accountable. In fact, agency officials who oversaw the technology directorate —
including Donald Kerr, who helped persuade George J. Tenet, then the director
of central intelligence, that the software was credible — were promoted, former
officials said. “Nobody was blamed,” a former C.I.A. official said. “They acted
like it never happened.”
After a bitter falling out between Mr. Montgomery and Mr. Trepp in 2006 led
to a series of lawsuits, the F.B.I. and the Air Force sent investigators to
eTreppid to look into accusations that Mr. Montgomery had stolen digital data
from the company’s systems. In interviews, several employees claimed that Mr.
Montgomery had manipulated tests in demonstrations with military officials to
Page 4 of 7Government Tries to Keep Secret What Many Consider a Fraud - NYTime...
Intelligence sources say that even within the CIA, the analysis was a closely guarded secret. Still, they say, some top CIA officials who learned about
it were skeptical. Top officials at the Directorate of Operations, which conducts clandestine operations, and others who worked at the CIA
Counterterrorism Center, felt that the whole theory was implausible and was being taken far too seriously.
As discredited as the CIA's interpretation now is, experts say steganography is a valid subject for CIA analysis, and could be used by terrorists to
hide data in files on the Web, in still photographs or in broadcast television images.
"Steganography," says professor Nasir Memon of Polytechnic University in Brooklyn, N.Y., "is the art, if you will, of secret writing. And when two
parties want to talk to each other and not let anybody know they are indeed communicating, they would use steganography."
Memon is an expert in "steganalysis" — using sophisticated software to locate hidden messages. He says such analysis is valuable but not always
reliable, because there are many "false positives." In general, he says, "it's not something I would bet the farm on because there is a significant
chance that it could be wrong."
TV networks commonly hide digital "watermarks" in their video broadcasts, a legitimate use of video encoding to pass along innocuous digital
information. The CIA's Al-Jazeera analysis is classified, and it is still unclear exactly what the CIA technicians were looking for in the network's
"crawl."
Ridge stands by alert
Regardless, Ridge told NBC News that the CIA analysis certainly did turn out to be wrong. He confirms there were no secret terror messages. He
also says there was no evidence that terrorists were actively plotting against aviation at the time.
But Ridge insisted it was not a mistake to raise the alert level or to cancel the flights.
"I think it was the right thing to do," he said.
Even if raising the alert level frightened a lot of people?
"We acted accordingly based on our best information and best conclusions and the information that we had at the time," Ridge said.
Ridge added that the faulty CIA analysis was a significant factor in raising the alert level, but not the only factor.
As for the CIA, a spokeswoman would not confirm or deny this report, but said it's the "agency's job to run all plausible theories to the ground,
especially when American lives could be at risk."
Lisa Myers is NBC’s senior investigative correspondent and Aram Roston is an NBC investigative producer.
1
Page 2 of 2Bogus analysis led to alert in 2003 - NBC Nightly News with Brian Williams - NBC New...
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http://www.wsj.com/articles/SB116234941031409783
This article was published on Nov. 1, 2006.
On a lavish, weeklong Caribbean cruise last year, software entrepreneur Warren Trepp
wined and dined friends and business partners aboard the 560-foot Seven Seas
Navigator.
Among Mr. Trepp's guests on the cruise ship: Rep. Jim Gibbons of Nevada and his
family. The two men have enjoyed a long friendship that has been good for both. Mr.
Trepp has been a big contributor to Mr. Gibbons's campaigns, and the congressman has
used his clout to intervene on behalf of Mr. Trepp's company, according to congressional
records, court documents and interviews. The tiny Reno, Nev., company, eTreppid
Technologies, has won millions of dollars in classified federal software contracts from the
Air Force, U.S. Special Operations Command and the Central Intelligence Agency.
At a time of rising concern over lawmakers who direct or "earmark" federal spending to
their supporters and business partners, a growing part of the budget is shielded fromscrutiny. This is the "black budget," mostly for defense and intelligence, which is
disclosed only in the vaguest terms. The ties between Mr. Trepp and Mr. Gibbons raise
questions about an influential politician in America's fastest-growing state, and also offer
a rare glimpse of contracts in this secret budget being awarded to a politically connected
businessman without competitive bidding.
BUSINESS UNDER COVER
Congressman's Favors for FriendInclude Help in Secret BudgetWith Rep. Gibbons's Backing, An Ex-Trader for Milken Wins Millions in
Contracts
|
Updated Nov. 1, 2006 11:59 p.m. ET
By JOHN R. WILKE
Page 1 of 9Congressman's Favors for Friend Include Help in Secret Budget - WSJ
The suit has raised alarms in Washington because of concern that national secrets will be
revealed if it goes to trial. For example, one of the entities that funded eTreppid is code-
named Big Safari and is a classified program, documents in the case show. The nation's
top intelligence official, John D. Negroponte, recently filed a statement with the court
seeking to seal the case. He wrote that after personally reviewing the matter, he has
concluded that disclosure of some information connected with the case could do"exceptionally grave damage" to national security.
The legal dispute, which hasn't been previously reported, sheds light on the shadowy
world of black-budget contracting and on Mr. Gibbons's efforts to help fund programs in
which eTreppid was involved.
Mr. Gibbons himself touted one earmark in a June 2004 news release. In the release, Mr.
Gibbons's office said he "specifically requested" a program that would pay $3 million for
eTreppid's automatic target-recognition technology, a computerized technique forpicking out objects from a stream of video images. The release also said the technology
had "great potential" for other federal applications, including satellite intelligence
gathering.
In the following year, an email from an eTreppid executive to Mr. Trepp and others at the
company described a $1.5 million "plus-up," or earmark, that the company's Washington
lobbyist "helped us get through Jim Gibbons." The money was for a subcontract on a
secret program, code-named "Eaglevision," involving satellite transmission of high-
resolution video images. Mr. Trepp acknowledged getting help from Mr. Gibbons on this
contract but added, "The specific contract which resulted from Jim's introduction was for
approximately $1.17 million."
Earmarks have attracted intense scrutiny this year and figured in a series of public-
corruption probes. Traditionally, programs are funded based on requests from
departments and agencies to Congress, which then appropriates money. Earmarks are
different because lawmakers can directly insert them into spending bills.
Page 4 of 9Congressman's Favors for Friend Include Help in Secret Budget - WSJ
The eTreppid story adds a twist because, as with the Eaglevision contract, some
programs that got funded with Mr. Gibbons's help are classified. The U.S. Constitution
says "a regular statement and account of receipts and expenditures of all public money
shall be published," but since the Cold War era a growing number of programs for
national defense or intelligence have been listed in the federal budget with only vaguedescriptions. This black-budget spending has more than doubled in inflation-adjusted
dollars since 1995, to more than $30.1 billion in the current fiscal year, according to the
Center for Strategic and Budgetary Assessments, a nonpartisan Washington policy
group.
Nevada Rep. Jim Gibbons, circled at top, and Warren Trepp, circled at bottom, with families, business partners
and friends on a Caribbean cruise last year. To the right of Mr. Trepp is actor Patrick Swayze and, behind him,
actor John O'Hurley of 'Seinfeld' fame.
Page 5 of 9Congressman's Favors for Friend Include Help in Secret Budget - WSJ
"The problem with earmarks is that they don't go through the normal oversight process --
a problem that is much worse in black programs, which have less congressional oversight
and obviously no public scrutiny," says Steven Kosiak, a researcher at the center.
Source of Secret Funds
One source of secret funds for eTreppid and other companies is the Special OperationsCommand. Based in Tampa, Fla., the command fields special-operations military and
intelligence forces around the globe and is at the forefront of the fight in Iraq and
Afghanistan. It has also been rocked by a criminal investigation of a former contracting
officer. The investigation is continuing, according to a spokesman for the U.S. attorney in
Tampa.
In a separate inquiry, Pentagon investigators last year found evidence that the command
kept special accounts for "unrequested congressional plus-ups," or earmarks. The plus-
ups were used to reward lawmakers with projects in their districts, according to
declassified investigators' notes reviewed by The Wall Street Journal. The Pentagon's
inspector general closed the inquiry after finding that the accounts weren't illegal.
Mr. Trepp said eTreppid won classified work on its merits and already had a number of
government contracts before Mr. Gibbons starting making introductions on the
company's behalf. Mr. Gibbons's campaign manager, Robert Uithoven, said the
congressman has been a strong supporter of new defense technology, particularly after
9/11. But he said there was "no quid pro quo whatsoever" for contributions from
contractors. And while some funding was secret, "it was because of the sensitive nature of
the work," Mr. Uithoven said, not to avoid public scrutiny.
For Mr. Trepp, eTreppid's success at winning multimillion-dollar federal contracts marks
a comeback from his Drexel days. He sat at Mr. Milken's right arm on the firm's famous
X-shaped trading desk in Beverly Hills, sometimes trading as much as $2 billion in
securities a day. Federal regulators filed a civil securities-fraud claim against him in 1995,
and a Securities and Exchange Commission administrative judge found that his
violations had been "egregious, recurring and intentional." But she dismissed theproceeding against him, noting that the allegations were old and he had left the securities
business years earlier.
Page 6 of 9Congressman's Favors for Friend Include Help in Secret Budget - WSJ
Mr. Trepp, a Drexel partner, later paid an estimated $19 million to help settle civil claims
against the firm, without admitting culpability in the case. But he emerged with most of
his fortune intact, and landed on the shores of Lake Tahoe, in Nevada, where he played
high-stakes baccarat, started a family and lived in a waterfront compound he later sold
for $32 million. He funded a community-philanthropy foundation in Lake Tahoe and
invested in films and Broadway plays. Mr. Trepp's latest show, "The Times They Are A-Changin'," choreographed by Twyla Tharp with music by Bob Dylan, opened last week
on Broadway.
Mr. Trepp jumped into the technology boom in 1998, founding eTreppid in Reno with
Mr. Montgomery, a software developer who served as chief technology officer, according
to court papers. Its first product converted casino-surveillance tapes into digital data that
could be stored and searched, based on data-compression and pattern-recognition
software written by Mr. Montgomery. It was tested in casinos in Reno and Las Vegas and
was eventually licensed to a unit of General Electric Co., in 2002.
By the following year, eTreppid shifted its focus to winning federal contracts for its data-
compression technology. At the time, military and intelligence officials were looking for
software that could store and search video taken by unmanned aircraft such as the
Predator. In early 2003, Mr. Montgomery was granted a security clearance and asked to
search for specific people, vehicles and other objects in battlefield video images, court
documents show.
The largest publicly known contract award to eTreppid was noted in a routine
announcement in 2004 by the Special Operations Command. The command described it
as an "indefinite-delivery/indefinite quantity...sole source," or no-bid, contract, with a
value of as much as $30 million.
Arranging Meetings
Between 2003 and 2005, Mr. Gibbons repeatedly arranged meetings and demonstrations
for eTreppid executives with top Air Force generals, both in Washington and Reno,
according to congressional staff and company documents.
On Sept. 25, 2003, the congressman had breakfast with the Air Force vice chief of staff,
where he pitched the promise of eTreppid's technology, according to a memo from a
Gibbons staff member to an eTreppid executive. Also in September, Mr. Gibbons, in an
email to an eTreppid executive, offered to try to set up a meeting with the National
Security Agency. It isn't known if the meeting took place.
Page 7 of 9Congressman's Favors for Friend Include Help in Secret Budget - WSJ
In May 2004, a lobbyist acting for eTreppid in Washington reported in another email,
"Congressman Gibbons certainly came through for eTreppid!" She said Mr. Gibbons
secured a $7 million appropriation for the company, although she warned in the email
that the amount might be reduced as the legislation moved along. The next month Mr.
Gibbons publicly announced the $3 million appropriation, which was directed to
eTreppid for its video compression and target-recognition technology. The project wasamong several in Nevada that Mr. Gibbons said that he had specifically requested.
House records show that in 2004, the lobbyist pushed for eTreppid's interests in the
defense-authorization and intelligence bills. Mr. Gibbons served on both of those
committees. Mr. Trepp says eTreppid never paid for a lobbyist in Washington.
ETreppid executives even sought help from Mr. Gibbons on routine problems. In 2004,
they asked for his help in getting a top official at the Department of Homeland Security
to return their phone calls, according to company emails reviewed by The Wall StreetJournal. And last year, an eTreppid executive, Patty Gray, wrote to Mr. Gibbons that the
company hadn't yet received funds in a "congressional appropriation that you helped us
with." Mr. Gibbons immediately assigned a staff member to prod the General Services
Administration for the funds, according to a later email.
On the Caribbean cruise in March last year, photos taken on board and at the Atlantis
casino in the Bahamas show the Gibbons and Trepp families together at dinners and
parties. Also on the cruise were actors Patrick Swayze and John O'Hurley, who played the
role of J. Peterman in the "Seinfeld" television series. The group flew back to Nevada
after the cruise on a chartered Boeing 727 paid for by Mr. Trepp.
Mrs. Gibbons says she helped pay for the trip by giving a $1,654 check to Mr. Trepp's
wife and putting $1,508 on her credit card for on-board expenses. An agent for the cruise
line estimated the cost of a comparable cruise for a family of three at more than $10,000,
excluding airfare.
Page 8 of 9Congressman's Favors for Friend Include Help in Secret Budget - WSJ
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Required Disclosure
Federal ethics rules require a public disclosure by members of Congress when they
receive gifts or make reimbursements. Mr. Gibbons says he believed the cruise was an
exception because he and Mr. Trepp are longtime friends. Kenneth Gross, a former
Federal Election Commission attorney now at Skadden, Arps, Slate, Meagher & Flom
LLP in Washington, says there is a friendship exemption but anything valued at more
than $250 must get written approval from the House ethics committee and in most cases
be publicly reported.
Documents make clear that the government found some of eTreppid's work valuable. In a
letter to Mr. Montgomery's lawyer earlier this summer, after the breakup with Mr. Trepp,
a top Air Force lawyer asked that Mr. Montgomery urgently return to work on technology
he had been developing for the military, even as the parties in the suit bitterly argued
over who owned the technology.
In the civil suit, Mr. Montgomery says he was pushed out of the company by Mr. Trepp in
January of this year when he refused to provide his source code to Mr. Trepp. Mr.
Montgomery was using the code on highly classified government work, the suit says. Mr.
Trepp, in turn, charged that Mr. Montgomery stole classified tapes from eTreppid when
he left. Agents in the local office of the Federal Bureau of Investigation began to look into
the matter.
On March 1, FBI agents raided Mr. Montgomery's home. They seized computers and
disks, but didn't find any classified material, court records in the civil suit show. Mr.
Montgomery has sought the return of his property, alleging that Mr. Trepp used his
political influence in the state to get local FBI agents to intervene in what was essentially
a private business and copyright dispute. Mr. Trepp denies Mr. Montgomery's claims and
says he will fight the lawsuit.
Court proceedings on the theft allegation and the FBI raid have taken place in secret. The
case is described in broad terms in the pending civil suit, which the government has
asked to seal as well.
Page 9 of 9Congressman's Favors for Friend Include Help in Secret Budget - WSJ
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http://www.wsj.com/articles/SB117150946219909515
Federal prosecutors are investigating whether Nevada Gov. Jim Gibbons accepted
unreported gifts or payments from a company that was awarded secret military contracts
when Mr. Gibbons served in Congress.
The Federal Bureau of Investigation is examining whether any gifts or payments violated
federal contracting rules or were offered in exchange for official acts by Mr. Gibbons,people briefed on the investigation said. Mr. Gibbons, a Republican, represented Nevada
for five terms in Congress, where he served on the House Intelligence and Armed
Services committees. He was sworn in last month as governor of the nation's fastest-
growing state.
The close ties between the congressman and the contractor, Warren Trepp, were
disclosed in a Nov. 1 Wall Street Journal article, which revealed that Mr. Gibbons
accepted private jet flights and a Caribbean cruise from the software-company owner.
Mr. Gibbons says accepting the cruise and flight didn't violate House ethics rules.
New evidence has emerged that includes emails to Mr. Trepp -- the majority owner of
eTreppid Technologies LLC and the former chief trader for convicted junk-bond dealer
Michael Milken -- discussing a payment or gift to then-Rep. Gibbons. They also show Mr.
Gibbons repeatedly using his congressional office to help the firm seek classified military
and civilian contracts.
LEADER (U.S.)
Nevada Governor Faces FBI Probe IntContractsFocus Is Gifts Gibbons Got While in Congress; 'Black Budget' Missions
Updated Feb. 15, 2007 12:01 a.m. ET
By JOHN R. WILKE
Page 1 of 5evada Governor Faces FBI Probe Into Contracts - WSJ
In later exchanges, Mr. Gibbons discusses his efforts to set up meetings with the
Department of Homeland Security, and arranges meetings with several Pentagon
officials, including a top defense intelligence official. An eTreppid executive responds,
"now if we can get into the Navy, it would be great."
In a statement yesterday, a spokesman for the governor said Mr. Gibbons has"consistently stated that he and Warren Trepp have a longstanding friendship." Mr.
Gibbons, the statement continued, is proud of his efforts "to highlight the good work of
Nevada companies as part of his duties to represent his constituents. However, he held
no special power in awarding defense contracts, which go through a multilevel approval
process."
Mr. Trepp didn't return phone calls or emails seeking comment. His attorney, Steven
Peek, said yesterday, "Warren has had no inquires or questions from any federal officials
about his relationship with Jim Gibbons." Mr. Peek said Mr. Trepp continues to talk tothe FBI "about the theft of his company's intellectual property" by his former partner, the
crux of continuing legal disputes between the two men. Mr. Peek also said Mr. Trepp
"unequivocally denies that he wrote any emails regarding any payments to Jim Gibbons,
and questions their authenticity."
Preliminary Stage
The FBI declined to comment on the investigation, which appears to be in a preliminary
stage. The bureau has stepped up its pursuit of public-corruption cases, and says it now
has about 620 agents working on federal, state and local cases, compared with 260 in
2002. On Tuesday, former senior CIA official Kyle "Dusty" Foggo was indicted on fraud,
conspiracy and money-laundering charges for allegedly accepting jet flights and a
vacation from a contractor, Brent Wilkes, who was indicted on related charges. Both
pleaded not guilty yesterday. The indictments arose from a continuing FBI investigation
of former Republican Rep. Randy "Duke" Cunningham of California, who last year began
serving a prison sentence for accepting bribes.
The Cunningham case and claims made against Mr. Gibbons have drawn attention toalleged congressional abuse of the classified or "black" portion of the federal budget,
which covers CIA, NSA and other secret government activities and has grown to at least
$30 billion. New limits on special-interest spending known as earmarks were enacted by
Congress last month, including rules meant to restrict earmarks in the classified budget.
Page 3 of 5evada Governor Faces FBI Probe Into Contracts - WSJ
The Nevada case is being watched closely in Washington: John Negroponte, former
director of national intelligence, warned in a court filing of "exceptionally grave damage"
to national security if details of the secret contracts are disclosed.
The new federal probe follows a Nevada investigation of the dispute over ownership of
eTreppid software used in secret government programs. That investigation was initiallyfocused on Dennis Montgomery, the former partner of Mr. Trepp who designed the
software on which eTreppid was founded in 1998. The men have accused each other of
trade-secret theft, among other claims, and have been battling in court for more than a
year.
The new emails and internal documents would appear to support some of the claims
made in legal proceedings filed by Mr. Montgomery, who in court papers has alleged that
Mr. Trepp gave at least $100,000 in cash and casino chips to Mr. Gibbons. Public records
show Mr. Trepp gave $90,000 to the governor's campaign through a series of separatecompanies, avoiding a $10,000 limit on individual or corporate contributions.
Defamation Suit
In court filings, Mr. Trepp has denied Mr. Montgomery's claims. He also filed a
defamation suit against the chairman of the Nevada Democratic Party, Tom Collins, over
published comments about the business dispute before last year's election. He cites "false
testimony" by Mr. Montgomery, who he says "engaged in a campaign to spread
falsehoods...which led up to a story published in the Wall Street Journal." The Journal
isn't a defendant in the libel suit, which is pending in state court in Reno.
The Nov. 1 page-one story in the Journal reported that Mr. Gibbons and his family
accompanied Mr. Trepp on a Caribbean cruise and that the congressman had helped Mr.
Trepp win federal contracts. Mr. Gibbons at the time said his assistance to Mr. Trepp's
company was simply intended to promote promising technology, and that the cruise and
et flights didn't violate House ethics rules because of his "close personal friendship" with
Mr. Trepp.
Mr. Montgomery has accused Messrs. Trepp and Gibbons of using their political clout to
get local FBI agents to raid his home and investigate him. In December, a federal
magistrate found flagrant constitutional violations in the FBI raid, according to people
briefed on her ruling, which remains under seal. The court found that the local FBI and
U.S. attorney's office had effectively acted as armed enforcers for eTreppid's wealthy
owner in a private business dispute with a former partner.
Page 4 of 5evada Governor Faces FBI Probe Into Contracts - WSJ
WASHINGTON — Nevada Gov. Jim Gibbons, whose first term has been marred by an FBI corruptioninvestigation, has been cleared of wrongdoing and will not be charged in the probe, his attorney said Sunday night.
Gibbons, a former Republican congressman, has been under investigation into whether he improperly received
gifts from a software company that received military contracts while he was in Congress. Gibbons steadfastly
denied any wrongdoing and said the Justice Department could look as hard as it wanted and wouldn't find anything
inappropriate.
Defense attorney Abbe Lowell said the Justice Department told him that Gibbons would not be charged. Such
assurances are commonplace when prosecutors have completed a case.
"The prosecutors in the case confirmed what the governor has been saying for the past two years -- that he did
nothing wrong and there was no basis for any allegations against him," defense attorney Abbe Lowell said in a
prepared statement.
The Justice Department had no comment on Lowell's assertion Sunday. But a law enforcement official close to the
case, speaking on condition of anonymity because authorities have not even officially acknowledged the
investigation, confirmed the substance of Lowell's statement.
The investigation arose from allegations by a former employee at eTreppid Technologies LLC, who said company
founder Warren Trepp lavished Gibbons with money and a Caribbean cruise in exchange for help winning defense
contracts for the company. But the credibility of the employee, Dennis Montgomery, was put in doubt after a
computer expert questioned the authenticity of e-mails he claimed proved Gibbons was accepting freebies.
"It should be crystal clear that the only persons who should be investigated or charged are those who made false
allegations of wrongdoing and who tried to fuel this investigation for their own private purposes," Lowell said. "The
people of Nevada should be proud to know that their governor is the hardworking, honest and ethical man they
elected in the first place."
Gibbons met with the FBI two weeks ago in Washington to discuss the case, and said afterward that he hoped for
"a positive outcome."
The conclusion of the FBI investigation eliminates one major distraction for Gibbons, whose first term has been
beset by problems. He has seen his approval ratings drop following a budget crunch, a messy divorce and lawsuits
involving his private and public activities.
Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewrittenor redistributed.
Posted 11/3/2008 7:55 AM E-mail | Print |
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Aug. 29 (Bloomberg) -- Edra Blixseth has come a long way since she and her husband, Tim,declared bankruptcy in rain-soaked Roseburg, Oregon, in 1986. He traded timberland. She hadowned a chain of four restaurants called Choo-Choo Willy's.
Neither business could support their debts.
Today, Edra lives in a 30,000-square-foot (2,800-square-meter) mansion on an estate near PalmSprings, California, called Porcupine Creek. The house, complete with servants, is surrounded
by a private golf course.
Porcupine Creek, a Gulfstream II, a 2004 Rolls-Royce Phantom and a BMW 760 are some ofthe spoils of Edra's July divorce from Tim. After a 19-month long fight, she also got control ofone big source of their wealth: a private Montana ski- and golf resort called the YellowstoneClub, where the likes of Microsoft Corp. founder Bill Gates, News Corp. President PeterChernin and hotelier Barry Sternlicht have erected supersized chalets on lots that until the realestate crash sold for $2 million and more.
The divorce is just one of a long list of legal skirmishes for Blixseth. She's battling to keep theYellowstone Club afloat, and in August settled a two-year-old claim by club investors that sheand Tim failed to fairly distribute the proceeds from a $375 million business loan toYellowstone from Zurich-based Credit Suisse Group.
Edra, 54, is also embroiled in a Reno, Nevada, lawsuit that makes the Montana case look like amissed putt on the Yellowstone Club's 7,200-yard (6,600-meter) golf course.
Page 9 of 21Yellowstone Club Divorcee Entangled in Terrorist Software Suits - Bloom...
She's dueling in court with Warren Trepp, once a top trader for Michael Milken, who allegesthat Edra and a former partner of Trepp's in a software company stole computer code that
purportedly could sift through broadcasts from Qatar-based news network Al-Jazeera and findembedded messages from terrorists. Edra tried to use connections to the Republican party to sell
the software to the government for $100 million, according to Michael Flynn, a lawyer who wasonce on Edra's payroll.
Flynn, 64, who spent much of the 1980s fighting the Church of Scientology on behalf of formermembers and journalists, says in court filings that he quit her employ after learning that thesoftware was a sham.
The Trepp case is all cloak-and-dagger. The Federal Bureau of Investigation had a team ofinvestigators working on it. Judges have sealed documents at the behest of U.S. intelligenceagencies. Trepp says an e-mail was faked to make it appear that a U.S. congressman was bribed.A business associate of Edra's says he warned the U.S. government about an August 2006 plot
to blow up jetliners over the Atlantic Ocean.
`Distraction'
Blixseth declined to discuss any of the legal squabbles in detail. In an e-mail to Bloomberg News, she said she's unfazed by the software controversy, calling it a ``distraction.'' She appearsin public now and again with new boyfriend Jack Scalia, 56, a one-time professional baseball
player and Jordache jeans model who starred on the soap opera All My Children.
Blixseth's focus these days, she says, is the Yellowstone Club. ``I am excited about the future ofthe Club, and working toward restoring it is my No. 1 business priority,'' she said in the e-mail.
Blixseth spent the summer trying to calm members who were irked that she and Tim, 58, hadfought so publicly over the club and had drawn out the legal fight with investors. ``I havealways felt that the Yellowstone Club is 'my baby,''' Edra wrote to members in a July 6 letterannouncing that she had vanquished Tim and taken control. ``I make a personal pledge to neverlet us waver again.''
Fishing the Gallatin
The Blixseths started the Yellowstone Club in 2000 on 13,400 acres (5,400 hectares) of oldlogging land in the Madison Range north of Yellowstone National Park.
It's tucked into a valley adjacent to two other, less-exclusive ski resorts, Big Sky and MoonlightBasin. Yellowstone members -- most of whom remain anonymous -- play golf and fish in theGallatin, a river featured in the Robert Redford film ``A River Runs Through It.''
The Blixseths have lived large off the Yellowstone Club. The rich thronged to the resort, payingout $205 million for 72 properties in 2005 alone -- most of them empty lots spread acrosswooded slopes.
Page 10 of 21Yellowstone Club Divorcee Entangled in Terrorist Software Suits - Bloo...
That year, when high-end real estate looked like a sure thing, Credit Suisse gave the club a $375million loan to repay old debt and ``fund a return of capital to the company's owners,'' accordingto a document describing the loan obtained by Bloomberg News.
LeMond Irked
Champion cyclist Greg LeMond, an early investor in the club, says the Blixseths took $209million of the money as their return of capital and that other investors should have gotten areturn, too. He filed suit in Montana state court in nearby Virginia City in May 2006.
During the Blixseths' divorce fight last year, Tim settled with LeMond, 47, and three otherinvestors. He paid $18 million, then missed a Jan. 31 deadline for a second and final $20 million
payment. The sides returned to court. After taking over the club, Edra settled the matter anew inAugust, paying another $8 million and pledging $13.5 million more by Nov. 15, according tosettlement documents obtained by Bloomberg News.
Edra neither admitted nor denied wrongdoing.
LeMond and the three other investors have done well. They put up a $750,000 down paymenteach in 2000 for an empty lot, a family membership and a 1 percent equity stake in the clubitself.
In his complaint against the Blixseths, LeMond says he believes part of the Credit Suisse moneywent to help Tim Blixseth buy a 16-bedroom chateau in France for $28 million, a golf resort onthe Pacific coast of Mexico for $40 million and property in St. Andrews, Scotland, for $12million.
High-End Network
They were to be part of a network of high-end time-share resorts called Yellowstone ClubWorld. Members would pay $3 million plus annual dues of $37,500 to use them.
Yellowstone Club World is dead. The French chateau was listed for sale by Mint Real Estate inLos Angeles for $60 million earlier this month, until Edra won it in the divorce and took it offthe market for the time being, says Tracey Broadman, a broker at Mint. Another YellowstoneClub World property, a 30,000-square-foot mansion on a private island in the Turks and CaicosIslands, is still listed for $55 million.
Tim declined to comment on the properties. Credit Suisse spokesman Duncan King said the firm
had no comment on the loan.
Edra Crocker Blixseth says she's accustomed to conflict. Her first husband beat her, she says ina 1987 book called ``Uncharged Battery'' (Portland Entertainment Publishing), which was billedas a self-help guide for battered women. She describes how he pulled her around the house bythe hair and, literally, walked on her.
Meeting Tim
Page 11 of 21Yellowstone Club Divorcee Entangled in Terrorist Software Suits - Bloo...
Blixseth doesn't name her first husband and says she didn't press charges. Instead, she left himand met Tim Blixseth, who grew up poor in Roseburg. He worked in lumber mills during highschool, developed a keen eye for timberland and made his first fortune buying and selling thewooded slopes of the Cascades. They married on May 21, 1983.
In her book, Blixseth describes another life trauma. She was in a hotel in Palm Springs shortly
after marrying Tim. ``I was laying on my bed watching TV, drinking a Coke and eatingsunflower seeds (three of my favorite things to do),'' she wrote.
A man knocked on the door, she opened it and he grabbed her by the neck. She fought her wayoutside and then punched, scratched and screamed as he tried to drag her back into the room. Heran off.
She and Tim prospered in the early 1980s. Then interest rates soared, and lumber pricestumbled. Continental Foodservice Co. sued Edra and Choo-Choo Willy's for an unpaid food billof $27,219.82. The Blixseths declared bankruptcy in 1986.
Threatened Bears
Tim then began accumulating land in southwestern Montana, just north of Yellowstone NationalPark , intending to develop it. The U.S. Forest Service, eager to protect the elk and bears, offeredto swap Blixseth's land for property it owned farther north. That land became the YellowstoneClub.
People who know Edra say she's decisive and analytical. Tim had the vision for the YellowstoneClub, and Edra made it a reality, the people say. She can be charming, though she swears like aWall Street trader.
``F@*#N A!!!!!!!!!!!!!!!!!!!!!,'' she wrote to Flynn after a victory in the software case.
Blixseth also has a crude sense of humor, the people say. She once gave vibrators to the wivesof male business partners as Christmas presents, a person whose wife got one says. Edradeclined to comment on the matter.
Code Warrior
Now that Tim and Edra have stopped tussling over the Yellowstone Club, life there may returnto normal. The software fight, though, is still raging.
The computer code in question compresses digital video so it can be transmitted moreefficiently. It also purportedly picks out patterns, such as targets for missiles or secret messagesembedded in broadcasts. Its inventor, Dennis Montgomery, 55, says in court filings that the U.S.Air Force used the software on the Predator , a drone aircraft used to track terrorists inAfghanistan and Iraq and sometimes fire missiles at them.
The two original actors in the drama were Trepp, the former trader at Drexel Burnham LambertInc., and Montgomery, a software designer and avid science-fiction-movie fan. Before meeting
Page 12 of 21Yellowstone Club Divorcee Entangled in Terrorist Software Suits - Bloo...
Trepp, Montgomery had worked at 3Net Systems Inc., a Sacramento, California-based firm thatmade software to help hospitals run their laboratories.
In 1997, a casino host at the Eldorado hotel in Reno introduced the two men. Montgomery toldTrepp he had software that could compress video images and search them and that he wanted toform a company. They planned to sell the software to casinos for video surveillance. Trepp and
Montgomery formed a company in 1998 that later became eTreppid Technologies LLC,headquartered in Reno.
Right Hand of Milken
Both men had tangled with the law in the past. Trepp went to work for Milken as a trader in1979. A year later, he became head of high-yield-bond trading and sat at Milken's right hand athis X-shaped trading desk in Beverly Hills.
Drexel paid a $650 million penalty for securities law violations and went bankrupt in 1990, andTrepp left for Lake Tahoe. The Securities and Exchange Commission in 1995 accused him of
executing fraudulent bond trades back in 1986.
``Trepp's violations were egregious, recurring and intentional,'' Administrative Law Judge CarolFox Foelak wrote in 1997. Even so, she dismissed the case, saying the SEC had waited too longto file it and that Trepp had done nothing else wrong in the interim.
Montgomery ran into trouble while working at 3Net, where a woman he supervised namedPenne Page alleged in a suit against the company that Montgomery twice masturbated in frontof her and asked if it ``turned her on'' to watch him, according to a summary of her complaint inCalifornia Superior Court in Sacramento. The case was resolved without any admission ofwrongdoing, according to Page's attorney, Chris Whelan.
No Comment
Montgomery declined to comment for this article. ``Talk to my attorneys,'' he said in atelephone call, then hung up.
Four years after it was incorporated, eTreppid got traction. In 2002, General Electric Co.licensed eTreppid's videotape search software to use in a product to be sold to casinos.
Two years later, the U.S. government awarded eTreppid a $30 million, five-year contract todevelop the code for what they termed ``automatic target recognition.''
To demonstrate his product, Montgomery would set up a video camera in a field behind theeTreppid office in Reno. Then he'd hold up a replica of a bazooka. A computer running his codewould pick out the weapon and highlight it on a monitor showing the feed from the camera.
Big Fan
One of eTreppid's biggest fans was U.S. Representative Jim Gibbons, a one-time airline pilotwho's now governor of Nevada. In September 2003, Gibbons was shown a demonstration of
Page 13 of 21Yellowstone Club Divorcee Entangled in Terrorist Software Suits - Bloo...
eTreppid's technology at the Lake Tahoe home of a member of the Yellowstone Club, accordingto Flynn.
The following June, Gibbons, 63, put out a press release saying that he had voted for a defenseappropriations bill that, he noted, included $3 million for eTreppid.
In September 2005, Trepp told Montgomery that the U.S. government was ready to spend $100million on the video technology, according to a statement Montgomery filed in federal court inReno in October 2006. Montgomery doesn't say which branch of the government was interested.
Edra Blixseth had no connection to eTreppid. She only got involved after 2005, when Trepp andMontgomery had a falling-out. According to a transcript of an FBI interview with Trepp inFebruary 2006, one cause of the split was that Trepp had begun to question the extent ofMontgomery's computer programming skills.
`Big Money'
Montgomery in December 2005 took disk drives containing eTreppid source code from theoffice and deleted copies of the code from all of the company's servers and workstations,according to eTreppid. To get it back, Trepp ``needs to give me big money,'' Montgomery toldanother eTreppid employee, the company claims.
Montgomery left eTreppid for good that January. ETreppid filed a report with the FBI and suedMontgomery in state court, winning a preliminary injunction preventing Montgomery fromaltering or transferring the code. That injunction was still in effect in late August. Blixseth andMontgomery are violating it, eTreppid says, by trying to sell the code.
In March 2006, then-U.S. Attorney Daniel Bogden became concerned that Montgomery might
have taken classified data provided to eTreppid by the Department of Defense. FBI agentsraided Montgomery's house. Two days later, they searched his lockers at a local storage unit,carting off two dozen computer hard drives and almost 100 compact discs.
Countersuit
In January 2006, Montgomery hired Flynn, who countersued eTreppid, saying Trepp hadinfringed copyrights that Montgomery had on the code and that he had obtained them long
before joining eTreppid. Flynn also went to federal court to claim the FBI raids violatedMontgomery's Fourth Amendment right against unreasonable search and seizure. Federal JudgeValerie Cooke agreed and, on Nov. 28, 2006, overturned the search. Montgomery got his hard
drives and CDs back.
Blixseth met Montgomery as a result of an investment she made in early 2006. A friend hadintroduced her to former Microsoft executive Michael Sandoval, who had just started acompany called AziMyth LLC in Bellevue, Washington. AziMyth, now called Atigeo, plannedto build software to deliver targeted advertising and link users in social networks.
Page 14 of 21Yellowstone Club Divorcee Entangled in Terrorist Software Suits - Bloo...
``I told Edra what we were doing, and Edra said, 'Hey, let's do a deal,''' Sandoval, 44, says.Blixseth invested $10 million in an AziMyth subsidiary called xPatterns LLC, Blixseth says incourt documents.
Microsoft Connection
Sandoval knew Montgomery from his Microsoft days. In 2004, he had traveled to Reno to talkto Trepp about a partnership. Trepp called in Montgomery to explain the technology, Sandovalsays. Sandoval says the next time he heard from Montgomery was in early 2006, when he calledSandoval looking for work.
Sandoval introduced him to Blixseth, and the three of them decided to start another AziMythsubsidiary called Opspring LLC. Blixseth and her family members, excluding Tim, were thesole investors, contributing $8 million.
She has since taken control of the company after a falling-out with Sandoval, whom she sued inWashington state court for allegedly misappropriating the money she invested in xPatterns.
Sandoval denies any wrongdoing. Judge Joan DuBuque dismissed Edra's complaint on Aug. 22,saying it failed ``to state claims upon which relief can be granted.''
Two days after the FBI searches, Montgomery asked Flynn to come to a meeting at Blixseth'sPorcupine Creek estate. Sandoval says the meeting was to finalize Montgomery's employmentcontract.
Flynn says in court documents there was more involved. He was introduced to Blixseth andSandoval at the meeting for the first time, and Montgomery told them about the $100 millioncontract that was in the offing for eTreppid, Flynn says in an April 24 court filing that has since
been sealed. Blixseth said she would use her Republican contacts to sell Montgomery's software
to the government.
Donors
Since 2000, Edra Blixseth has given more than $30,000 to Republican candidates, according tothe Federal Election Commission. Tim has given about $120,000. They've given through theclub, too. In 2003, Yellowstone Development LLC, one of the two Blixseth-controlled
partnerships that own the club, gave $100,000 to a group called ̀ `Arnold Schwarzenegger 'sTotal Recall Committee, Vote Yes to Recall Gray Davis.''
Blixseth pushed hard in Washington. Flynn says she told him she talked to Vice President Dick
Cheney, then-Defense Secretary Donald Rumsfeld, then-Montana Senator Conrad Burns andIndiana Representative Dan Burton about the software.
James Hennigan, a spokesman for Cheney, says, ``We do not comment on pending legislation.''
Rumsfeld and Burns didn't return phone calls. Burton says he knows the Blixseths, but that Edranever asked him for help selling software.
Terrorist Warning
Page 15 of 21Yellowstone Club Divorcee Entangled in Terrorist Software Suits - Bloo...
``Those are dummied-up, fake e-mails,'' says Gibbons's lawyer, Abbe Lowell of McDermottWill & Emery in Washington. No criminal charges have been filed against Gibbons orMontgomery.
Natalie Collins, a spokeswoman for the U.S. Attorney's Office in Nevada, says she can'tcomment on whether Gibbons is or isn't the target of an investigation.
Flynn says in pleadings that he stuck by Montgomery and Blixseth because he believedMontgomery's contention that Trepp was out to get his code.
Unsealed
Then, on April 9, 2007, U.S. District Judge Philip Pro in Reno unsealed all of the records in thecase to the attorneys involved. Before doing so, Pro ordered the Department of Defense toredact items it wanted kept secret.
If Montgomery's software was valuable for tracking terrorists, the government wouldn't disclose
it, Flynn says. In September, the judge opened the records to the public, and the world got itsfirst look at evidence the FBI had gathered before searching Montgomery's house. It paints anunflattering picture.
One document is a report from an Air Force investigator on his interview with eTreppidemployee Jesse Anderson on Jan. 24 and 25, 2006. Anderson says Montgomery asked him onabout 40 occasions to help with the demonstrations of the company's software in which itidentified the bazooka. Each time, Montgomery told Anderson to watch a video on his computerscreen and when he saw a bazooka, to hit the A key. Another employee, James Bauder,described the same process, except he was instructed to hit the space bar.
Bazooka Fakery
Flynn's conclusion: The demonstration was faked, and his clients had been lying to him.Montgomery's software couldn't pick out the bazooka, or anything else, in a stream of video.
Flynn says in pleadings that his doubts about Montgomery were bolstered further by the factthat the FBI allowed documents to be released describing Montgomery's assertion that hissoftware could detect ``noise'' in Al-Jazeera broadcasts indicating terrorist attacks wereimminent -- suggesting they didn't believe it.
On July 9, 2007, after 17 months, Flynn filed a motion with the court to withdraw as
Montgomery's attorney. He also sued for unpaid fees. The judge ruled that Montgomery --whose legal costs, according to Flynn, have been paid by Blixseth -- owed him $629,000. He isseeking another $380,000 in sanctions.
Blixseth declined to comment on the software's usefulness or on Flynn's accusations.
``Because litigation is pending, I cannot respond to these spurious and inflammatoryallegations,'' she wrote in an e-mail. ``I also will not speculate on the motivations of those whomay be furthering these inaccurate and counterproductive rumors. What I can tell you is that I
Page 17 of 21Yellowstone Club Divorcee Entangled in Terrorist Software Suits - Bloo...
and my business associates have and always will operate with the highest legal and ethicalstandards as our priority.''
Violated Order
The legal merry-go-round keeps spinning. ETreppid is pressing its case that Blixseth,Montgomery and Sandoval violated the Nevada court's preliminary injunction by trying to sellthe software. Montgomery maintains through his lawyers that the software is his alone and veryvaluable. Few people know for sure because Montgomery has refused to produce the code incourt.
Montgomery's lawyers at Liner Yankelevitz Sunshine & Regenstreif LLP in Los Angeles saythe computer code can't be made part of any court record. ``The source code to be produced isamong the very most sensitive of such material -- worth millions or tens of millions of dollarsand easily copied if not protected,'' they wrote to the court on Aug. 4.
Judge Pro on Aug. 18 ordered Montgomery to pay $2,500 a day in sanctions until he produces
the code in court.
In her book for battered women, Blixseth paraphrases U.S. President Calvin Coolidge:``Nothing in the world can take the place of persistence. Talent will not, genius will not andeducation will not.''
Blixseth fought for control of the Yellowstone Club and won. Now, she's fighting to protectMontgomery's software, even as he faces contempt charges. That may not be the kind of
persistence that Coolidge had in mind, yet it may get her where she wants to go. It has so far.
To contact the reporter on this story: Anthony Effinger in Portland, Oregon, at
HEADLINE: The man who conned the pentagon: Dennis Montgomery claimed he could intercept satellite
transmissions being sent to Al Qaeda agents. for a while he had the U.S. government believing he was right.
BYLINE: Roston, Aram
BODY:
The weeks before Christmas brought no hint of terror. But by the afternoon of December 21, 2003, police stood
guard in heavy assault gear on the streets of Manhattan. Fighter jets patrolled the skies. When a gift box was left on
Fifth Avenue, it was labeled a suspicious package and 5,000 people in the Metropolitan Museum of Art were herded
into the cold.
It was Code Orange. Americans first heard of it at a Sunday press conference in Washington, D.C. Weekend
assignment editors sent their crews up Nebraska Avenue to the new Homeland Security offices, where DHS secretary
Tom Ridge announced the terror alert. "There's continued discussion," he told reporters, "these are from credible
sources--about near-term attacks that could either rival or exceed what we experienced on September 11." The New
York Times reported that intelligence sources warned "about some unspecified but spectacular attack."
The financial markets trembled. By Tuesday the panic had ratchetedup as the Associated Press reported threats to
"power plants, dams and even oil facilities in Alaska." The feds forced the cancellation of dozens of French, British andMexican commercial "flights of interest" and pushed foreign governments to put armed air marshals on certain flights.
Air France flight 68 was canceled, as was Air France flight 70. By Christmas the headline in the Los Angeles Times
was SIX FLIGHTS CANCELED AS SIGNS OF TERROR PLOT POINT TO L.A. Journalists speculated over the basis
for these terror alerts. "Credible sources," Ridge said. "Intelligence chatter," said CNN.
But there were no real intercepts, no new informants, no increase in chatter. And the suspicious package turned out
to contain a stuffed snowman. This was, instead, the beginning of a bizarre scam. Behindthat terror alert, and a string of
contracts and intrigue that continues to this date, there is one unlikely character.
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The man's name is Dennis Montgomery, a self-proclaimed scientist who said he could predict terrorist attacks.
Operating with a small software development company, he apparently convinced the Bush White House, the CIA, the
Air Force and other agencies that Al Jazeera--the Qatari-owned TV network--was unwittingly transmitting target data to
AI Qaeda sleepers.
An unusual team arrived in Reno, Nevada in 2003 from the Central Intelligence Agency. They drove up Trademark Drive, well south of the casinos, past new desert warehouses. Then they turned into an almost empty parking lot, where
a sign read ETREPPID TECHNOLOGIES. It was anattractively designed building of stone tile and mirrored windows
that had once been a sprinkler-head factory.
ETreppid Technologies was a four-year-old firm trying to find its way. Some of its employees had been hired to
design video games. One game under construction was Roadhouse, based on the 1989 movie in which Patrick Swayze
plays a bouncer in a dive. bar. Other programmers worked on streaming video for security cameras.
When the liaison team stepped into eTreppid's office, the CIA man in charge introduced himself as Sid but didn't
give his last name. Hewas tall and in his 50s, with a well-ironed shirt, a paunch and a mildly robotic politeness. "We
called him Sid Vicious," one eTreppid technician explained, "because he was anything but."
Sid's team set up on the first floor in an unused office and had special cipher locks installed. Workers carted, in a
heavy-duty paper shredder that could transform classified documents to dust in seconds. They set up impenetrable safes
with combination locks protected by privacy screens so bystanders couldn't steal the code.
The CIA team was there to work with Dennis Montgomery, at the timeeTreppid's chief technology officer and part
owner. Then 50 years old, with a full head of gray hair, the street-smart Montgomery stood at about five feet eight
inches. Other eTreppid workers, hearing the buzz about the spooks in town, peered through their blinds and watchedas
Montgomery worked at his desk at the north end of the building. He wore his usual jeans and Tommy Bahama shirt.
He could be seen handing off reams of paper to Sid and the CIA. "They would sit in the room and review these
numbers or whatever the heck Dennis was printing out," one former eTreppid employee, Sloan Venables, told me. "We
called them Sid's guys, and no one knew what the hell they did."
Montgomery called the work he was doing noise filtering. He was churning out reams of data he called output. It
consisted of latitudes and longitudes and flight numbers. After it went to Sid, it went to Washington, D.C. Then it found
its way to the CIA's seventh floor, to Director George Tenet. Eventually it ended up in the White House. Montgomery's
output was to have an extraordinary effect. Ridge's announcement, the canceled flights and the holiday disruptions were
all the results of Montgomery's mysterious doings.
He is an unusual man. In court papers filed in Los Angeles, a former lawyer for Montgomery calls the software
designer a "habitual liarengaged in fraud." Last June Montgomery was charged in Las Vegas with bouncing nine checks
(totaling $1 million) in September 2008 and was arrested on a felony warrant in Raricho Mirage, California. That
million is only a portion of what he lost to five casinos in Nevada andCalifornia in just one year. That's according to his
federal bankruptcy filing, Where he reported personal debts of $12 million. The FBI has investigated him, and some of
his own co-workers say he staged phony demonstrations of military technology for the U.S. government.
Montgomery has no formal scientific education, but over the past six years he seems to have convinced top people
in the national security establishment that he had developed secret tools to save the worldfrom terror and had decoded
Al Qaeda transmissions. But the communications Montgomery said he was decrypting apparently didn't exist.
Since 1996 the Al Jazeera news network had been operating in the nation of Qatar, a U.S. ally in the war on terror.
Montgomery claimed he had found something sinister disguised in Al Jazeera's broadcast signal that had nothing to do
with what was being said on the air: Hidden in the signal were secret bar codes that told terrorists the terms of their next
mission, laying out the latitudes and longitudes of targets, sometimes even flight numbers and dates. And he was the
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only man who had the technology to decrypt this code.
As strange as his technology appeared to be, it was nevertheless an attractive concept. Montgomery was as
persuasive as some within theintelligence community were receptive. Al Jazeera was an inspired target since its
pan-Arabic mission had been viewed with suspicion by those who saw an anti-American bias in the network's coverage.
In 2004Secretary of Defense Donald Rumsfeld accused Al Jazeera of "vicious,inaccurate and inexcusable" reporting.Will Stebbins, Al Jazeera's Washington bureau chief, told The Washington Post, "There was clearly an attempt to
delegitimize Al Jazeera that came during a period of a lot of national hysteria and paranoia about the Arabic world." ("It
is unfortunate," an Al Jazeera spokesperson told playboy when asked for comment, "that a select few people continue to
drag up these completely false conspiracy theories about Al Jazeera, which were generatedby the previous U.S.
administration.") Over the years Montgomery's intelligence found its way to the CIA, the Department of Homeland
Security, Special Forces Command, the Navy, the Air Force, the Senate Intelligence Committee and even to Vice
President Dick Cheney's office.
Back in 2003, just before the terror alert caused by Montgomery's technology, eTreppid held a Christmas party in a
ballroom at the Atlantis Casino in Reno. Employees gathered at round tables to dine and drink. Even a CIA man showed
up, a lanky fellow wearing a button-down shirt with an oxford collar. By the end of the night, employees noticed
Montgomery and eTreppid chief executive Warren Trepp talking closely. A photo snapped by an employee showsMontgomery with his jacket off and a Christmas ribbon wrapped around his head like a turban with a rose tucked into it.
He was hugging Trepp, who sobbed into his shoulder. The festivities were a rare break for Montgomery, who had been
busy churning out terrorist target coordinates for the CIA.
On Sunday, January 4, 2004 a British Airways flight out of Heathrow was delayed for hours for security reasons,
and FBI agents demandedthat hotels in Vegas turn over their guest lists. It was also the day a top CIA official flew to
the eTreppid office in Reno. There, on eTreppid letterhead, the CIA official promised the company's name would not be
revealed and that the government would not "unilaterally useor otherwise take" Montgomery's Al Jazeera technology.
Back in Washington, few insiders in government knew where the intelligence was coming from. Aside from Tenet
and a select few, no one was told about eTreppid's Al Jazeera finds. Even veteran intelligence operatives within the CIA
could only wonder. "These guys were trying to hide it like it was some little treasure," one former counterterrorist
official told me.
The reason the whole thing worked was because Montgomery's CIA contact was with the agency's Directorate of
Science and Technology. That's the whiz-bang branch of the intelligence service, where employeesmake and break
codes, design disguises and figure out the latest gadgets. S&T was eventually ordered by CIA brass to reveal its source
tosmall groups from other parts of the agency. And when some experienced officers heard about it, they couldn't believe
it. One former counterterrorism official remembers the briefing: "They found encoded location data for previous and
future threat locations on these Al Jazeera tapes," he says. "It got so emotional. We were fucking livid. I was told to shut
up. I was saying, 'This is crazy. This is embarrassing.' They claimed they were breaking the code, getting latitude and
longitude, and Al Qaeda operatives were decoding it. They were coming upwith airports and everything, and we were
just saying, 'You know, this is horseshit!'" Another former officer, who has decades of experience, says, "We were told
that, like magic, these guys were able to exploit this Al Jazeera stuff and come up with bar codes, and these barcodes
translated to numbers and letters that gave them target locations. I thought it was total bullshit."
The federal government was acting on the Al Jazeera claims withouteven understanding how Montgomery found
his coordinates. "I said, 'Give us the algorithms that allowed you to come up with this stuff.' They wouldn't even do
that," says the first officer. "And I was screaming, 'You gave these people fucking money?'"
Despite such skepticism, the information found its way to the top of the U.S. government. Frances Townsend, a
Homeland Security advisorto President George W. Bush, chaired daily meetings to address the crisis. She now admits
that the bar codes sounded far-fetched. And, she says, even though it all proved to be false, they had no choice butto
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of Trepp but were aware of his background. They also say they saw Milken at eTreppid. "I saw him come in once, and
he had this entourage of five or six people with him," says Bauder."They came walking down the hallway, and he
looked at me and smiled,introduced himself and then went on down the hall."
ETreppid landed its first big contract from General Electric in 2002 for use of its video compression technology in
gaming surveillance. The company eventually got a contract with the Air Force dealing with aspects of video shot byunmanned Predator drones. Montgomery claimed his software could automatically recognize weapons and faces. In
2004 the U.S. Special Operations Command gave eTreppid a $30 million no-bid contract for "compression" and
"automatic target recognition."Venables and Bauder acknowledge they can't be certain that no "anomaly detection" or
"pattern recognition" software existed, but they doubt it did. In fact, eTreppid workers later told the FBI they thought
Montgomery had developed little if any original software.
Montgomery and eTreppid did, over time, receive five patents for various inventions and theoretical methods
related to video and data. These included a "method and apparatus for storing digital video content provided from a
plurality of cameras" and a "method and apparatusfor detecting and reacting to occurrence of an event." But
Montgomery said these patents had nothing to do with his government work, and they never seemed to lead to business
or profit.
FBI reports indicate Montgomery rigged tests to make government officials think his software could detect
weapons in video streams. Apparently it was all part of Montgomery's claim to have developed "automatic target
recognition" software. Imagine how useful it would be ifa computer could pick out AK-47s in enemy hands. That's how
eTreppidgot at least one contract. One former employee told agents he helpedfake as many as 40 demonstrations.
Bauder says he helped once, unwittingly. He told his story to the FBI, and he told it to me. In his demonstrations
Montgomery often used a plastic toy bazooka that he said a computer could recognize as a weapon. He would do the
demonstration in scrubland behind eTreppid's offices. "Some military guys were walking around the office," says
Bauder. Montgomery suddenly came to him, he says, "and takes me back tohis office. He closes the door and closes the
blinds and was like, 'Need you to do something for me. Don't worry; we are just doing a demo. It's all good.'" Bauder
was concerned about the secrecy. "I was like, 'But what's with the doors and blinds?'" Montgomery looked up at Bauder
and told him it was okay. They would communicate via an open cell phone line. He told Bauder to listen to the phone.
'"When you hear the tone, I want you to hit the space bar on the keyboard.'" Bauder, in other words, would be secretlycommunicating with Montgomery while the military guys watched the supposed software demo on another computer.
Montgomery ran off to do his demonstration outside. Bauder watchedthe computer screen, seeing what the camera
saw. Montgomery held thetoy bazooka in one hand while his other hand was hidden. When Bauderheard the tone, he
says, "I hit the space bar. A little square encircled his image through the camera on the screen. He was running around
with the fake plastic bazooka." Bauder figured Montgomery had rigged the computer screen so it seemed as if the
square was tracking the bazooka. In reality, the square was brought up on the screen when Bauder hit the space bar.
ETreppid needed security clearances to get classified contracts. In 2004 Venables was selected as the firm's
facilities security officer. He flew to Baltimore for Department of Defense training. It was anarduous process, with the
Defense Security Service probing everyone's background.
Montgomery received an "interim secret" clearance in May 2003, according to records later released in a federal
case. In February 2004 he got a top-secret clearance from the Defense Industrial Security Clearance Office. At
eTreppid, Montgomery appears to have taken a curious approach to secrecy. Venables and Bauder say Montgomery had
his own way of classifying items at the company. "He had rolls of classified stickers," Bauder says, "and he would just
put them on random garbage."
The CIA was an eTreppid customer, as was SOCOM and the Air Force. Soon the Navy started coming by.
Montgomery said he had another "filter" to identify underwater submarines by scanning a giant satellite photo of the
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ocean. Although Montgomery claimed he was using his software, Bauder and Venables say he appeared to be doing it
by eye.
The pattern recognition, anomaly detection and compression work were nice, but it was the Al Jazeera stuff--the
"noise filtering"--thathad cash potential. Even though the CIA had abandoned Montgomery in 2004 after determining
the bar codes didn't exist, he and eTreppid continued to try to sell it.
Trepp later told a judge in a federal lawsuit that he'd asked the government for $100 million. Montgomery has also
cited that figure insworn declarations--though he also claimed Trepp wanted $500 millionfor the "decoding
technology." He would tell his lawyers and investors that the money was "appropriated" as part of the "black budget."
ETreppid did have powerful friends and lobbyists on Capitol Hill. It had strong connections on the House Permanent
Select Committee on Intelligence. The local congressional representative, Republican Jim Gibbons--soon to be
governor of Nevada--was on the committee. But by late2005 things were falling apart between Montgomery and Trepp.
There were indications Montgomery was losing big at the blackjack tables. According to an FBI investigation, he
borrowed $275,000 from Trepp "to pay down casino and other debts." Trepp told FBI agents he'd made himsign a note
that he'd pay it back--Trepp had loaned him more than $1.3 million over the years.
One eTreppid employee told the FBI that she notified Trepp about the faked bazooka tests. Evidently Trepp hadn'tknown. She informed Trepp she didn't think Montgomery had written "any significant software" for the company.
Trepp heard from others that Montgomery didn't have the technical skills he claimed to have.
For his part, Montgomery was grumbling. Trepp had not adequately shared the tens of millions in government
funds he had made. "Warren is screwing me out of the money," Montgomery said to Venables. In January 2006
Montgomery left eTreppid. He asked Bauder to help load his big Chevy twin-cab truck on a Saturday. When he left,
according to eTreppid, the company's software had been deleted and the source code wiped out. Even the surveillance
videotapes were blank. If eTreppid wasa store, its inventory was gone. It couldn't do government contracts, video games
or compression.
Trepp believed he had backup. After all, Montgomery had assured him he'd give him daily backups of his material.
So Trepp went to his outside safe where he kept whatever Montgomery had given him. He gave the material to his
security officer, Sloan Venables. Venables says the entire backup for the multimillion-dollar eTreppid operationconsisted of three CDs and two hard drives. Venables looked at the disks and drives and turned back to Trepp. '"In
seven years, that's all? Three CDs and two hard drives?' I said, 'Don't you think that's weird?'"
Venables ran the supposed backup files through his computer. "There was nothing on them," he says. "There were a
couple of zip files, and the hard drives had some source codes for an interface." It wasn'tanything that could run as a
program.
Trepp called the FBI. Not only was the company software gone and its tapes erased, but, he told them, classified
tapes were missing. InJanuary 2006 the U.S. government suspended Montgomery's security clearance. (Montgomery,
however, later stated he was unaware his clearance had been suspended.)
Montgomery's phone rang on February 16. The voice on the other endwas someone he trusted: Paul Haraldsen, an
agent of the Air Force Office of Special Investigations. For years Haraldsen had reassured himthe government was stillinterested in the Al Jazeera intercepts. "Hey, Dennis--Paul, how are you?" What Montgomery didn't know was that
Haraldsen was working with the FBI on the investigation and was recording the call. Montgomery railed against Trepp
and bragged about his bizarre intelligence work. "I did something very good for this country," he said. Montgomery
boasted that even if the CIA didn't believe in him, the work he did was "100 percent accurate--more accurate than
people will ever know." (The agency's name is blacked out in the court transcript, but it is clear what he means.)
Haraldsen apparently tried to lure him in. Money might be available, he said. "You know, we had money loaded in a
pipeline," Haraldsen said to Montgomery. He could go back to his bosses in Washington and let them know whether to
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home was near the gambling tables at the Agua Caliente Casino, where he lost $422,000 in one day.
Blxware, the company through which Blixseth was doing business, had lofty connections. With the aid of Nevada
senator Harry Reid's office, Montgomery's technology found its way to the Senate Intelligence Committee staff. This is
no routine achievement: The committee staff,operating in a special office of the Dirksen Senate building, constitutes an
elite sector in Washington. Normal lobbyists cannot walk in to see staffers because their offices are protected, withspecial access and guards. When intel staffers talk, the intelligence community listens because they hold the reins--they
control oversight.
Montgomery claimed he was reading secret messages about three Americans who had been grabbed in the Sunni
triangle. Signals were comingout "related to the recent hostage-taking of our three soldiers," Montgomery told the
staffers. He warned them that something was up. Thestaffers didn't know what to make of it.
In 2007 things were looking up for Montgomery. He finally got someinterest, this time from an agency he couldn't
name in public. Reading between the lines, one can presume it was the National Security Agency. But then
Montgomery had a strange reaction. He had just "purged" the software, he said, and it would take time to redo it. He
wanted$4 million from the U.S. government to get started.
The FBI investigation of Montgomery went nowhere. First, his new lawyer challenged the FBI searches, and the
judge found in his favor. Then Montgomery went on the offensive, accusing his accuser. He went public with
allegations that Trepp had committed bribery by paying off Nevada congressman Jim Gibbons. NBC News did an
exclusive interviewwith Montgomery at Blixseth's house. He was dressed in a suit and tie and said he saw the bribe take
place. He claimed Trepp had given Gibbons "casino chips and cash" worth about $100,000. Montgomery backedthis up
with e-mails he said he'd taken off the eTreppid server. Trepp and Gibbons found themselves under a grand jury's
scrutiny. They, not Montgomery, were targeted. But Montgomery's allegations fell apart after a forensic expert for
eTreppid alleged in court papers that one crucial e-mail had been doctored. The Department of Justice later dropped the
case, and Gibbons was cleared.
By 2008 things seemed to have resolved themselves in the epic litigation between Montgomery and his old
moneyman Warren Trepp. There was a glitch at first: Montgomery was supposed to produce a key CD withthe
breakthrough software he claimed he'd invented, the very heart of this case. But he couldn't find the disk, he said, and heclaimed he couldn't re-create the lost and precious secret. He lashed out at the FBI in a court document. It was the
agents who had ruined everything anyway, he said. The FBI had "damaged and in some cases destroyed"his property.
That backfired, but the parties all seemed to come to a temporary agreement. By the fall, Montgomery settled his
long-standing suit with Warren Trepp. Terms weren't released at the time, but Trepp let Montgomery and his new
financier, Edra Blixseth, keep the "software." Court records indicate Montgomery and Blixseth would now owe $26.5
million to Trepp.
One can only assume it hit Montgomery hard: Four days after the settlement he spent his day at Caesars Palace on
the Las Vegas Strip. He was a blackjack player by preference, according to all accounts, and so he presumably sat at the
high roller's blackjack tables on September 27. He was, in the parlance of the gambling hall, a "whale." He took out his
checkbook and tore out check after check, making them out to Caesars Palace Hotel and Casino, and buying cash and
chips. The first check was for $10,000, then $100,000 and on and on. That's blackjack for you. In fact, Montgomery
bought a cool million dollars' worth from the casino that day. Caesars won't comment on individual players, but
prosecutors say Montgomery's checks later bounced. (In October 2009 Montgomery came up with $250,000 in
restitution, which kept him from being prosecuted.)
But Montgomery and the U.S. government were apparently still working together. The CIA had discredited the
embarrassing Al Jazeera technology, but it was all still secret, still classified. Few people even in the government knew
about the old scandal. Montgomery and his patron somehow found a new federal buyer willing to hand over taxpayer
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funds. In this case it was $3 million for "research, development, test and evaluation." It was written in the dense
language of federal procurement law and revived all the terms Montgomery had bandied about.The contract was so
heavily redacted that even the name of the Air Force office is blacked out. I read through a version of the document,and
at the end I found the nondisclosure agreement. "This agreement is entered into between the United States Air Force and
Dennis Montgomery." He signed it January 29, 2009.
Montgomery did not cooperate with this story, but I managed to reach the Air Force program manager, Joseph
Liberatore. "How do I want to say this?" he said. "We were testing some of the software. We were just looking at it to
see if there was anything there. If there is anything there we wanted to make sure there was due diligence and it was
looked at by the U.S. government."
I asked the Air Force how this could have happened. The chief of the Air Force press desk, Andrew Bourland, said
Blxware represented its software as "innovative and transformational." But the results of the evaluation were
"inconclusive" and discussions were over. The first taxpayer transfer to Edra Blixseth's company was a $2 million
payment on February 5, 2009. That same month, Blxware paid Dennis Montgomery $600,000.
In June, four months after collecting all that money, Montgomery and his wife declared personal bankruptcy. One
of his assets, he claimed, was the $10 million value of his "copyrights"--all that software.His bankruptcy lawyer tells methe technology Montgomery claimed to have invented is an asset in the bankruptcy proceedings. "It'll be between the
government authorities and Dennis," he says.
So in the end, was there ever any software designed by Montgomery?Sloan Venables and Jim Bauder say they
doubt it. They shrug and laugh. "I never saw it," says Venables. But if it's all bogus, why is it still classified? And if
Montgomery's claims have any truth, why can't anyone else find what he found? Did that $100 million
appropriationever exist? And who will Dennis Montgomery reach out to with his next scheme?
"The aliens who stripped you naked--did they say which planet theywere from?"
"Ours was okay. How did your office holiday party go?"
"It's been done."
LOAD-DATE: February 20, 2010
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I, Patrick Fox, hereby certify under penalty of perjury that on the 17th day of January,2011, copies of the above document were served electronically by ECF notice to all persons/entities requesting special notice or otherwise entitled to same and that in addition, Ihereby certify that I have mailed or served the document to the following non-ECF participantsin the manner indicated by the non-
No manual recipients.
By /s/ Patrick Fox
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