Interviews with more than two dozen current and former officials and business associates and a review of documents show that Montgomery and his associates received more than $US20 million ($19.82m) in government contracts by claiming that 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 CIA and the Air Force, repeatedly missed the warning signs, the records and interviews show. Montgomery's former lawyer, Michael Flynn — who now describes Montgomery as a "con man" — says he believes that the administration has been shutting off scrutiny of Montgomery's business for fear of revealing that the government has been duped. "The Justice Department is trying to cover this up," Flynn said. "If this unravels, all of the evidence, all of the phony terror alerts and all the embarrassment comes up publicly, too. 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 Montgomery, 57, who is in bankruptcy and living outside Palm Springs, California. Montgomery is about to go on trial in Las Vegas on unrelated charges of trying to pass $US1.8 million in bad cheques 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 computer codes he patented — codes that 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 codes led to dead ends in connection with a 2006 terrorism plot in Britain. And they were used by counterterrorism officials to respond to a bogus Somali terrorism plot on the day of President Barack Obama's inauguration, according to previously undisclosed documents. "Dennis would always say, 'My technology is real, and it's worth a fortune,"' recounted Steve Crisman, a filmmaker who oversaw business operations for 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 September 11, eagerly embraced the promise of new tools against militants. CIA officials, though, came to believe that Montgomery's technology was fake in 2003, but their conclusions apparently were not relayed to the military's Special Operations Command, which had contracted with his firm. In 2006, FBI investigators were told by co-workers of Montgomery that he had repeatedly doctored test results at presentations for government officials. But Montgomery still landed more business. In 2009, the Air Force approved a $US3 million deal for his technology, even though a contracting officer acknowledged that other agencies were skeptical about the software, according to emails obtained by The New York Times.

Hints of fraud by Montgomery, previously raised by Bloomberg and Playboy, provide a cautionary tale about the pitfalls of government contracting. A Pentagon study in January found that it had paid $US285 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 their technology 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. "In this complex intelligence world," he said, "they can't deliver on what they say". Montgomery is not saying much these days. 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, eTreppid Technologies, that he helped found in 1998. He and his partner — a Nevada investor, Warren Trepp, who had been a top trader for the junk-bond king Michael Milken — hoped to colourise movies by using a technology Montgomery claimed he had invented that identified patterns and isolated images. Hollywood had little interest, but in 2002, the company found other customers. With the help of Rep. Jim Gibbons, a Republican who would become Nevada's governor and was a longtime friend of Trepp's, the company won the attention of intelligence officials in Washington. It did so with a remarkable claim: Montgomery had found coded messages hidden in broadcasts by Al Jazeera, and his technology could decipher them to identify specific threats.

The software so excited CIA officials that, for a few months at least, it was considered "the most important, most sensitive" intelligence tool the agency had, according to a former agency official, who like several others would speak only on the condition of anonymity because the technology was classified. ETreppid was soon awarded almost $US10 million in contracts with the military's Special Operations Command and the Air Force, which were interested in software that Montgomery promised could identify human and other targets from videos on Predator drones. In December 2003, Montgomery reported alarming news: Hidden in the crawl bars broadcast by Al Jazeera, someone had planted information about specific US-bound flights from Britain, France and Mexico that were hijacking targets. CIA officials rushed the information to Bush, who ordered those flights to be turned around or grounded before they could enter US 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 federal aviation 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 to suspect that "we got played", a former counterterrorism official said.

The CIA 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 CIA official said. "They acted like it never happened." After a bitter falling out between Montgomery and Trepp in 2006 led to a series of lawsuits, the FBI and the Air Force sent investigators to eTreppid to look into accusations that Montgomery had stolen digital data from the company's systems. In interviews, several employees claimed that Montgomery had manipulated tests in demonstrations with military officials to make it appear that his video recognition software had worked, according to government memorandums. The investigation collapsed, though, when a judge ruled that the FBI had conducted an improper search of his home. Software and secrets The litigation worried intelligence officials. The Bush administration declared that some classified details about the use of Montgomery's software were a "state secret" that could cause grave harm if disclosed in court. In 2008, the government spent three days "scrubbing" the home computers of Montgomery's lawyer of all references to the technology. And this past fall, federal judges in Montana and Nevada who are overseeing several of the lawsuits issued protective orders shielding certain classified material. The secrecy was so great that at a deposition Montgomery gave in November, two government officials showed up to monitor the questioning but refused to give their full names or the agencies they worked for.

Years of legal wrangling did not deter Montgomery from passing supposed intelligence to the government, according to intelligence officials, including an assertion in 2006 that his software was able to identify some of the men suspected of trying to plant liquid bombs on planes in Britain — a claim immediately disputed by US intelligence officials. And he soon found a new backer: Edra Blixseth, a onetime billionaire who with her former husband had run the exclusive Yellowstone Club in Montana. Hoping to win more government money, Blixseth turned to some influential friends, like Jack Kemp, the former New York congressman and Republican vice-presidential nominee, and Conrad Burns, then a Republican senator from Montana. They became minority stakeholders in the venture, called Blxware. 'We are all toast' In an interview, Burns recalled how impressed he was by a video presentation that Montgomery gave to a cable company. "He talked a hell of a game," the former senator said. Kemp, meanwhile, used his friendship with Vice President Dick Cheney to set up a meeting in 2006 at which Kemp, Montgomery and Blixseth met with a top Cheney adviser, Samantha Ravich, to talk about expanding the government's use of the Blxware software, officials said. She was noncommittal.

Flynn, who was still Montgomery's lawyer at the time, sent an angry letter to Cheney in May 2007. He accused the White House of abandoning a tool shown to "save lives", and warned that if the administration failed to block a Montana judge from making confidential details public, Montgomery would have to "reveal the names of the individuals he worked with at the CIA." (After a falling out with Montgomery, Flynn now represents another party in one of the lawsuits). But Montgomery's company still had an ally at the Air Force, which in late 2008 began negotiating a $US3 million contract with Blxware. In emails to Montgomery and other company officials, an Air Force contracting officer, Joseph Liberatore, described himself as one of the "believers" in the technology, despite skepticism from the CIA and problems with the no-bid contract. If other agencies examined the deal, he said in a December 2008 email, "we are all toast". "Honestly I do not care about being fired," Liberatore wrote, but he said he did care about "moving the effort forward — we are too close". (The Air Force declined to make Liberatore available for comment).

The day after Obama's inauguration, Liberatore wrote that government officials were thanking Montgomery's company for its support. The Air Force appears to have used his technology to try to identify the Somalis it believed were plotting to disrupt the inauguration, but within days, intelligence officials publicly stated that the threat had never existed. In May 2009, the Air Force cancelled the company's contract because it had failed to meet its expectations. Montgomery is not saying much these days. At his deposition in November, when he was asked if his software was a "complete fraud", he answered, "I'm going to assert my right under the Fifth Amendment". The New York Times