HOMELAND INSECURITY
Who's guarding U.S. nuke secrets?
Firm with access to nuclear labs run by foreign CEO
October 31, 2002
According to the Insight report, what's now raising eyebrows is the fact that the new CEO of the Secret Service's lead contractor, Ultrak Inc. of Lewisville, Texas, is a Swiss resident with close ties to the Russian government.
In fact, he's close enough to have once been allowed access to Russia's ultra-secret nuclear-weapons command center.
Niklaus Zenger took over as Ultrak's CEO during a June shareholders meeting. He and all but one member of the company's board of directors are foreign nationals.
Said one security expert, "A foreign-controlled company whose CEO has ties close enough to the Russian government to be toured through its nuclear command center should not be anywhere near the chain of authority of a highly sensitive data system at the White House,'' according to the Insight report.
Some of Zenger's former business associates say they're also disturbed to hear he's running a company in charge of the crucial computer system used to clear those who go in and out of the White House.
These same sources say Zenger's close ties to the Russian government go back to the days of the former Soviet Union. They also claim he has a history of running away with proprietary U.S. technology after coming up short on promised cash and other commitments.
They say it's a track record that makes him untrustworthy to handle security issues for any government agency, let alone the White House.
''He's the last person I'd ever want to be involved with, let alone leading a group that's doing security for the White House,'' says Wayne Jacoby, a former business associate.
Ultrak isn't saying much about its new CEO. The company won't make Zenger available for interviews. It's also refused to provide a photo or basic biography with the date and place of his birth.
The company's general counsel, Karen Austin, says Ultrak performed a background check on Zenger before he joined the board of directors, but admitted the inquiry was cursory.
''In Europe, the privacy laws are pretty strict, and really all you can find out is whether they've had any criminal convictions,'' she says. ''He did not.''
Zenger frequently visits corporate headquarters in Lewisville, Texas. ''He has a lot of energy and a lot of real innovative ideas. Our CFO compared him to Bill Gates,'' said Austin.
Meanwhile, according to the Insight report, there's heightened concern over new business Ultrak has obtained with U.S. government agencies.
The company has just been selected to install a new system at the Los Alamos and Sandia nuclear laboratories in New Mexico. These are the same labs where alleged Chinese espionage is reported to have resulted in Communist China getting U.S. nuclear-weapons designs.
The labs had contracted with Ultrak vendors to build a new computerized fire-protection system that experts say would give the contractor sensitive data about process details and the location of important data and materials.
Austin adds Zenger probably will have little involvement with the Ultrak division handling Los Alamos and Sandia systems, but conceded that he likely would have access to the system designs if he wanted to review them.
Notra Trulock, the former director of intelligence for the Department of Energy who blew the whistle on lax security at the labs during the Clinton administration, says there should be concern about a foreign-owned company doing this type of work.
''They have to know physically where everything is. Presumably they'll have a combination of blueprints and walk-arounds and so forth. At Los Alamos there's one area where they store plutonium, for instance. That could present some interesting fire-protection problems. If there's fissile material ? highly enriched uranium or plutonium ? or something like that where you would be worried about terrorist threats, then there would be issues,'' said Trulock.
However, Trulock says the designers of the system probably will not have access to the design of nuclear weapons.
Los Alamos is currently investigating whether the Ultrak vendors are in breach of contract by violating the lab's ''Buy American'' provisions, says lab spokesman Kevin Roark. ''We direct all of our contractors not to deal with companies that are foreign-controlled,'' says Roark. ''It's part of every contract we have. ... it could be that they're in breach.''
And even if Ultrak manages to meet Los Alamos' definitions of an American company, critics say Zenger's background and business history should be enough to make the lab and other government facilities think twice before dealing with him.
Zenger's disputes with American technology companies reportedly go back to the early '90s.
According to a 1993 article in Oregon Business magazine, Zenger was CEO of a Swiss company called BCG when he made a deal with Portland, Ore.-based PC Technology and Summit Micro Design of Sunnyvale, Calif., to ship 3,000 386SX computers to the Ukraine, then a communist stronghold and part of the U.S.S.R.
The computers were shipped, but the money never came.
''They kept giving us excuses why the money wasn't there, such as the investors were holding onto it or the bank was having difficulty transferring the money,'' a PC Technology official told Oregon Business.
According to the Insight report, a similar dispute involved a company Zenger formed in the Philadelphia area called CyberNet Inc.
The company was set up to perform long-distance telephone routing services and to compile U.N. statistics for software. Zenger recruited Jacoby, who says he put $35,000 of his own money into the company.
But after almost a year, Jacoby says, Zenger still had not made good on his promise to pay Jacoby and the other associates in the company who developed the technology.
''He took the know-how and all my contributions and didn't pay for anything,'' Jacoby said.
Jacoby sued Zenger's company in the small-claims court and won a judgment of $8,500 against him in April 1997, which Jacoby says remained unpaid.
Shareholders in I-Link of Draper, Utah, also have raised concerns about Zenger being trusted with information relating to national security, according to the Insight report.
I-Link developed innovative technology that would allow its customers to receive phone calls, faxes and e-mails at the same time on the same telephone line and to engage in teleconferencing without prior arrangements with the phone company.
In May of 2000, Red Cube International, a Swiss telecommunications company whose CEO was Zenger, entered into a licensing agreement with I-Link to market its technology. It later made an agreement to acquire controlling interest in I-Link from its majority shareholder, Winter Harbor LLC, an investment firm owned by hotel magnate Richard Marriott and his family.
Then in December of 2000, Red Cube announced it would not pay Winter Harbor and it also failed to deliver the operational funding I-Link said it had promised to them. Red Cube contended in a Securities and Exchange Commission filing that it was withholding payment because I-Link had violated the terms of its agreement. I-Link disputed the claim and charged in a lawsuit that Red Cube was trying to bankrupt the company and pirate its proprietary technology without paying for it.
I-Link and Red Cube went through a long arbitration process in New York City. Winter Harbor eventually sold its controlling interest in I-Link to Counsel Corp., a Canadian firm. But in the meantime I-Link, while remaining solvent, saw its share price tank. It closed at 10 cents on Oct. 23, and shareholders who have lost almost everything they put in, blame Zenger for much of the drop.
''He tried to steal the technology and take our customers and key employees and pirate them away, so that we wouldn't have anything,'' says Paula Danieli, who bought stock in I-link in 1999.
Then in October of 2001, shortly after the I-Link controversy and just after the attacks on New York City and Washington, Zenger acquired controlling interest in Ultrak.
Although the company's share price was volatile and it wasn't in great financial shape, Ultrak could have been attractive in a time of heightened security for its prestigious security contracts with government entities such as the Secret Service.
And according to the Insight report, the Secret Service has no objections to a company headed by a foreign CEO with Russian ties handling a system that contains sensitive data about who goes in and out of the White House, when and why.
''Everybody who's worked on it has had the appropriate security clearance,'' Secret Service spokesman Marc Connolly said.
But some of those who have dealt with Zenger worry about what the United States stands to lose.
''It's totally frightening," says I-Link shareholder Danieli. ''I can't believe that our government would be so irresponsible as to put this guy into this kind of situation. It just boggles my mind. We're supposedly under heightened security, and it really bothers me that somebody not even from the United States, from a foreign country and with a dubious background, can affect the entire U.S. national security.''
