The man who prompted the December 2003 Orange alert was Dennis Montgomery, who has since been embroiled in various lawsuits, including one for allegedly bouncing $1 million in checks during a Caesars Palace spree. His former lawyer calls him a "habitual liar engaged in fraud."
Working out of a Reno, Nevada, software firm called eTreppid Technologies, Montgomery took in officials in the CIA's Directorate of Science and Technology and convinced them that technology he invented -- but could not explain -- was pulling terrorist-produced "bar codes" from Al Jazeera television broadcasts. Using his proprietary technology, those bar codes could be translated into longitudes and latitudes and flight numbers. Terrorist leaders were using that data to direct their compatriots about the next target.
But Montgomery's "technology" could not be reproduced, and the Playboy piece explains how he fell out of favor after word of what was going on spread in the CIA:
The federal government was acting on the Al Jazeera claims without even 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?'" ...
A former CIA official went through the scenario with me and explained why sanity finally won out. First, Montgomery never explained how he was finding and interpreting the bar codes. How could one scientist find the codes when no one else could? More implausibly, the scheme required Al Jazeera's complicity. At the very least, a technician at the network would have to inject the codes into video broadcasts, and every terrorist operative would need some sort of decoding device. What would be the advantage of this method of transmission?
A branch of the French intelligence services helped convince the Americans that the bar codes were fake. The CIA and the French commissioned a technology company to locate or re-create codes in the Al Jazeera transmission. They found definitively that what Montgomery claimed was there was not. Quietly, as far as the CIA was concerned, the case was closed. The agency turned the matter over to the counterintelligence side to see where it had gone wrong.
Former Homeland Security adviser Frances Townsend defended the use of Montgomery's "intelligence" in an interview with Playboy, telling the magazine, "It didn't seem beyond the realm of possibility. We were relying on technical people to tell us whether or not it was feasible. I don't regret having acted on it."
Check out this New York Times article from the time, which reported that the decision to raise the threat level "came after intense consultations over the weekend among intelligence agencies, which had picked up recent talk among extremists about some unspecified but spectacular attack."
But even after the CIA abandoned Montgomery, he appears to have convinced other agencies that his decoding technology was legit. He inked a $3 million research contract with the Air Force in January of this year. An official explained to Playboy, "We were just looking at [software] to see if there was anything there."
The full story by Aram Roston in Playboy is definitely worth a read.