Spies for Hire

by Tim Shorrock

  60. Steven Emerson, “America’s Doomsday Project,” U.S. News & World Report, August 7, 1989.

  61. Pete Yost, “Whistle Blower Claims Harassment,” Associated Press, October 15, 1989; and CNN “Special Assignment” with David Lewis, November 17, 1991.

  62. Yost, “Whistle Blower Claims Harassment.”

  63. “ManTech Wins Information Systems Support Contract,” ManTech press release, December 7, 2001.

  64. Brody Mullins, “Renzi Under Fire for Defense Provision,” Roll Call, September 11, 2003.

  65. Interview with Brad Antle, Wall Street Transcript, August 21, 2006, posted on SI International Web site.

  66. Ibid.

  67. “Former Assistant Secretary of Defense John Stenbit Appointed to SI International Board of Directors,” SI press release, April 26, 2004.

  68. Suzelle Tempero, “MTC Chairman Takes Reins,” Dayton Business Journal, November 20, 2006.

  69. Collins spoke at the 2006 investors conference sponsored by Friedman, Billings, Ramsey.

  70. Argon, SEC Form 424B4, filed December 13, 2005.

  71. “Argon ST,” Washington Technology, October 30, 2006.

  72. While acquisitions enrich the owners of the company being sold, it’s not clear that such mergers have been good for the country. On January 10, 2007, shareholders of Essex Corporation gathered at company headquarters for a historic meeting. Northrop Grumman, the nation’s third-largest defense contractor, had offered $580 million to buy the company. The offer had already been accepted by the Essex board of directors, so the vote that day was a formality. A reporter for the Baltimore Sun recorded what happened. “Wearing a blue dress shirt and a parrot dangling from a green Mardi Gras–style beaded necklace, Leonard E. Moodispaw, the company’s unconventional CEO, read aloud the formalities of the proxy vote to the 30 shareholders who attended the special meeting…. He confirmed that a majority of the shareholders—most of whom are institutions—had approved the cash-and-debt offer from Northrop Grumman. Despite the magnitude of the sale, the meeting lasted just seven minutes and ended with applause. Afterward, Moodispaw, who is usually quick to quote a line from his favorite singer Jimmy Buffett to sum up his mood, was quiet, almost somber. He called the vote ‘anticlimactic.’ ‘I’m ready to get on with getting operations moving,’ he said.” The deal was done. (See Allison Connoly, “Essex Sale to Northrop approved,” Baltimore Sun, January 11, 2007.)

  A few days later, Moodispaw reflected on the sale in a telephone interview with the author. “I didn’t really want to sell,” he told me. “Some of our employees who’ve worked in big companies aren’t excited about it.” But the board, he said, had no choice but to present the offer to Essex’s shareholders, 60 percent of whom are large institutions, because “they stand to make a sizable return.” In fact, at $25 a share, the Northrop Grumman acquisition was sure to make some Essex shareholders very wealthy indeed, particularly those who bought their stock at its pre-9/11 price of $3. Despite his concerns about the changes sure to be implemented by the giant contractor, Moodispaw vowed to stay on as Essex was absorbed into Northrop Grumman’s Mission Systems unit, which employs 17 people in forty-seven states. “We try to have fun, and they claim they will continue that tradition,” he said. “And I know they mean well.”

  Essex’s sale closed one of the unlikeliest stories in the intelligence industry. The company was probably the purest example of a pure play: by the time of its sale to Northrop Grumman, it was earning 90 percent of its revenue from the National Security Agency alone. It also held contracts with the NRO, the NGA, the Missile Defense Agency, the Defense Advanced Research Projects Agency, and all four branches of the U.S. armed forces, according to SEC filings. At the same time, Moodispaw, the CEO, was a highly unusual leader for an intelligence company: in addition to his unconventional appearance, he is a lifelong Democrat opposed to the war in Iraq. In our interview, he happily described himself as a “flaming liberal,” and wasn’t afraid in the least to criticize the commander-in-chief. “The Bush administration is the most vindictive administration I’ve ever seen,” he told me.

  Essex was also different in the way it promoted its business. ManTech and the other pure plays advertise heavily and, through their political action committees, hand out tens of thousands of dollars to congressmen in their districts. Not Essex: it expanded largely on the reputation of its technology. Essex never placed an ad, refused to pay lobbyists, and didn’t operate a PAC. “I won’t play the lobbying game,” Moodispaw told me. “That process leads to the [Jack] Abramoffs of the world”—a reference to the Republican lobbyist who was the central figure in a 2006 political corruption investigation in Washington. Moodispaw also takes pride in the fact that he supplied technology to his clients, as opposed to the big contractors who shift armies of cleared employees from agency to agency—a practice that Moodispaw disdains as “body shopping.” “We didn’t just send fifty people to sit in a building and be the arms and legs of the government,” he said.

  Now, as tiny Essex is being taken into the huge defense maw of Northrop Grumman, the acquisition is propelling the parent company deeper into the NSA and the market for interpreting signals intelligence. Essex’s optical technology will be used by the conglomerate as a door to get into more agencies, and within a few years everything that made it a unique enterprise will be gone. By that time, Moodispaw—who has virtually disappeared from the pages of the industry press since the acquisition—will probably be ready to retire a very wealthy man. At the USGIF symposium in Orlando, I asked a Northrop Grumman executive what might happen to Essex and the entrepreneurs who founded it; will they find a place in the corporation? “It’s all part of the negotiating process,” replied John Olesak, vice president of space and intelligence in the company’s IT sector. “You want to maintain the culture and characteristics of a company, but it doesn’t always work because you can’t come to terms.” In the end, there’s “no one model that fits every acquisition.” For the employees of Essex, that didn’t sound very promising.

  The loss of an independent company like Essex may not be the best thing for the IC as a whole or, for that matter, the nation. The mergers and acquisitions boom in intelligence is taking place at a time when the DNI and some officials at the Pentagon have recognized the pitfalls of handing huge contracts to conglomerates like Northrop Grumman and SAIC. A few weeks before the Essex sale went through, a DoD official warned that the systems integrators would no longer get preference in contracting; but if all the middle-sized companies are gobbled up, who’s going to take on the smaller, bite-sized contracts that acquisition officials now want to hand out? Another issue, which came to the fore with the sale of Anteon, involves these firms’ value to the government as third-party consultants. Anteon, like CACI, partly made its way as a company by providing acquisition oversight to organizations like the U.S. Navy. But once it was acquired by General Dynamics, which has a huge business making surface ships for the Navy, Anteon could no longer provide that service as an uninterested party.

  As a result of that conflict of interest, I was told by defense analyst Thomas Meagher, Anteon had to sell off four of its contracts; but in the process, the government lost an important service. That remains a big concern to investment banks, Meagher told me.

  Finally, as techno-powers like Essex are sold off, where will new technologies come from? According to a recent study by the Center for Strategic and International Studies, over 50 percent of the key technologies in the defense industrial base come from small companies. Essex itself won its NSA contracts because it was able to get its product to the battlefield quickly—much faster than its larger competitors. The loss of the pure plays, including the ones that were swallowed up in the post-9/11 IPOs that swept through the industry, could dry up an important source of technology. “What is going to be the source of innovation for intelligence and defense after these companies are sold?” Michael Murphy, a securities analyst involved in the Essex IPO, asked at the 2006 Intelcon confe
rence in Bethesda, Maryland. Pointing to General Dynamics again, he wondered aloud: “Is the intelligence community better off with Veridian as part of a giant corporation?” I would say probably not.

  9. THE RISE OF THE NATIONAL SURVEILLANCE STATE

  1. Michael Hayden, address, National Press Club, January 23, 2006, www.dni.gov/speeches/20060123_speech.htm.

  2. This was stated by Assistant U.S. Attorney General Thomas Bondy in open court on August 16, 2007, when the Justice Department argued against the Electronic Frontier Foundation’s lawsuit against AT&T before the 9th Circuit Court of Appeals in San Francisco.

  3. Eric Lichtblau and James Risen, “Domestic Surveillance: The Program; Spy Agency Mined Vast Data Trove, Officials Report,” New York Times, December 24, 2005.

  4. Chris Roberts, “Transcript: Debate on the Foreign Intelligence Surveillance Act,” El Paso Times, August 22, 2007.

  5. Mike McConnell, “Help Me Spy on Al Qaeda,” New York Times, December 11, 2007.

  6. Lichtblau and Risen, “Spy Agency Mined Vast Data Trove, Officials Report.”

  7. Helen Fessenden, “Senate Democrats Seek to Regroup Quickly on Surveillance Law Rewrite,” The Hill, September 11, 2007.

  8. Eric Lichtblau, James Risen, and Scott Shane, “Wider Spying Fuels Aid Plan for Telecom Industry,” New York Times, December 16, 2007.

  9. Albert Gidari, interview with author, January 2006.

  10. Alan Mauldin, interview with author, January 2006.

  11. Leslie Cauley, “NSA Has Massive Database of Americans’ Phone Calls,” USA Today, May 11, 2006.

  12. Interview with author, March 2006.

  13. The idea that there might have been more than one NSA program largely comes from the Bush administration itself. In his many statements on the legality of the NSA’s warrantless eavesdropping, Alberto Gonzales, who was President Bush’s White House lawyer and later served as attorney general, was careful to say that he was talking only of programs “described by the President.” In one of his first memos on the subject of eavesdropping, drafted when he was White House counsel, he wrote that “as described by the President, the NSA intercepts certain international communications into and out of the United States of people linked to Al Qaeda or an affiliated terrorist organization,” and added that “the NSA activities described by the President are fully consistent with the Fourth Amendment and the protection of civil liberties.” So it was when he testified before Congress. In 2006, asked during a hearing before the Senate Judiciary Committee if officials in the Justice Department had objected to the NSA’s wiretapping program, Gonzales (then the attorney general) denied the reports with this qualified statement: “There has not been any serious disagreement about the program that the president has confirmed.” His answers to similar questions from other lawmakers were clotted with phrases like “not under the program about which I’m testifying,” or “beyond the bounds of the program I’m testifying about today.”

  Those answers left lots of room for the Bush administration. “While Gonzales often seemed to be making wholesale denials, it seems he was only making retail denials, very specific denials, about this one program, and he simply didn’t say about the other programs,” Peter Swire, Ohio State University law professor and FISA expert, told me in 2007. “Nor was he actually denying the existence of other programs.” Jim Dempsey, the executive director of the Center for Democracy and Technology, who has testified in Congress many times about FISA, believes from the evidence that the NSA ran three separate spying programs using the telecommunications system. But the differences between programs may not have been readily apparent to intelligence analysts or companies involved in the data mining.

  The government, and particularly the NSA, “were running around frantically post-9/11 doing a lot of things and accessing a lot of data,” Dempsey said in a 2007 interview. “Some of it was on an ongoing basis, some of it was on a one-time basis only. In other words, the phone companies might have said, ‘sure we’ll give this to you today, but we can’t let it go on forever.’ So one of the problems phone companies faced was, they got sucked into the emergency and it kept going and going and going.” As a result, a participant in these programs might dispute the tripartite analysis because it was “subject to evolution over time that may have blurred the boundaries between each program.”

  Finally, Director of National Intelligence Mike McConnell seemed to acknowledge multiple programs, albeit without any specifics, in a July 2007 letter to Arlen Specter, the ranking Republican on the Senate Judiciary Committee. “A number of these intelligence activities were authorized in one order” by President Bush shortly after 9/11, he wrote. With regard to the administration’s Terrorist Surveillance Program, he added: “This is the only aspect of the NSA activities that can be discussed publicly, because it is the only aspect of those various activities whose existence has been officially acknowledged.”

  14. Rebecca Carr, “AT&T Whistleblower: Say No to Telecom Immunity,” Austin American-Statesman, November 6, 2007, http://www.statesman.com/blogs/content/shared-blogs/washington/secrecy/entries/2007/11/06/att_whistleblower_say_no_to_te.html.

  15. James Risen and Eric Lichtblau, “Ex-Worker at AT&T Fights Immunity Bill,” New York Times, November 7, 2007.

  16. Ellen Nakashima, “A Story of Surveillance,” Washington Post, November 7, 2007.

  17. Ibid.

  18. John Markoff and Scott Shane, “Documents Show Link Between AT&T and Agency in Eavesdropping Case,” New York Times, April 12, 2006; and Robert Poe, “The Ultimate Net Monitoring Tool,” Wired News, May 17, 2006.

  19. Melanie Warner, “Web Warriors,” Fortune, October 15, 2001.

  20. PBS Frontline, “Spying on the Homefront,” www.pbs.org/wgbh/pages/frontline/homefront/.

  21. Nakashima, “A Story of Surveillance.”

  22. John Pike, interview with author, December 2006.

  23. PBS Frontline, “Spying on the Homefront.”

  24. Another knowledgeable source close to the Bush administration is John Stopher, the former budget director of the House Permanent Select Committee on Intelligence. In 2006, in a speech to intelligence contractors and officials gathered in Orlando for the GEOINT conference sponsored by the U.S. Geospatial Intelligence Foundation, he alluded to the NSA surveillance program when he spoke about using computers to do “things humans can’t do.” Stopher is well informed about the subject. He began working in the IC in 1988 as a systems engineer with Eastman Kodak, a member of the illustrious first generation of intelligence contractors from the Cold War. During the first six years of the Bush administration, he held three positions at the intelligence committee, including staff director of the subcommittee on technical and tactical intelligence and program monitor for the NRO. His budget committee also had jurisdiction over spending on the NSA, the NGA, and the CIA’s Directorate of Science and Technology. As a result, he was probably one of the few staffers cleared to learn about the Terrorist Surveillance Program. “In the case of who’s calling al Qaeda,” Stopher told the GEOINT 2006 conference, “we have to understand that the power of the algorithms to sort through these problems and identify these sorts of things is really the future. This is what will keep America well ahead of its adversaries. I think we’ll see another generation of advancement in that—rather than just sorting through phone calls, if we can structure data correctly, remove barriers that keep people from sharing information, then we can start looking at relationships in multiple dimensions: every phone number has a location; every credit card transaction, every car rental, hotel rental, things like that all have locations as well. You begin to see the power if you can get the data accessible, to where this country can go.” These three principles of obtaining huge streams of data, analyzing it with privately developed software, and then using the analysis to zero in on the enemy, are key to the U.S. war on terror as fought by the Bush administration.

  25. John Markoff, “Government Looks at Ways to Mine Databases,” New York Times, February 25
, 2006.

  26. Walter Pincus, “NSA Gave Other US Agencies Information from Surveillance,” Washington Post, January 1, 2006.

  27. Ibid.

  28. Elise Ackerman and K. Oanh Ma, “Wholesale Snooping,” San Jose Mercury News, May 28, 2006.

  29. “Attensity Forms Partnership with IBM,” Attensity press release, October 17, 2006.

  30. Intelligence page, Visual Analytics Inc., http://www.visualanalytics.com.

  31. Laura K. Donohue, “Anglo-American Privacy and Surveillance,” The Journal of Criminal Law and Criminology, Northwestern University School of Law, Vol. 96, No. 3, 2006, p. 1080.

  32. James Bamford, The Puzzle Palace, p. 306.

  33. Ibid., p. 305.

  34. Donohue, “Anglo-American Privacy and Surveillance,” p. 1080.

  35. Bamford, The Puzzle Palace, p. 312.

  36. Ibid.

  37. Ibid., p. 376.

  38. Quoted in Donohue, “Anglo-American Privacy and Surveillance,” p. 1096.

  39. Kenneth Bass, interview with author, January 2006.

  40. Eric Lichtblau, “Key Senators Raise Doubts on Eavesdropping Immunity,” New York Times, November 1, 2007.

  41. Daniel W. Reilly, “Rockefeller predicts win in FISA fight over telecom immunity,” Politico, January 23, 2008.