Booz Allen Falls After Employee Intel Leak

Booz Allen Hamilton Holding Corp. (BAH) fell 2.6 percent after Edward Snowden, an employee, revealed a top-secret U.S. electronic surveillance program.

Booz Allen, a government consultant majority owned by the Washington-based private-equity firm Carlyle Group LP (CG), closed at $17.54 in New York trading, on volume more than four times the three-month average. They earlier declined as much as 5 percent, the biggest intraday drop since Jan. 30.

Snowden’s leak puts Booz Allen’s reputation at risk, and may affect contracts in the short term if the company is found to have not protected classified information. Booz Allen, based in McLean, Virginia, relied on the federal government for 99 percent of its $5.76 billion in revenue in the year ended March 31, according to a regulatory filing. Almost a quarter of those sales came from supporting U.S. intelligence agencies.

“It strikes right at the heart of credibility and security for a company like Booz Allen,” said Scott Sobel, president of Media & Communications Strategies Inc., a public relations firm in Washington.

“If they can’t represent to government and other clients that their employees are properly vetted and secure, their business and credibility certainly will take a huge hit. They have to be scrambling right now.”

Source: The Guardian via Getty Images

Edward Snowden, a former technical assistant for the Central Intelligence Agency, speaks during an interview in Hong Kong in this handout photo provided by The Guardian. Close

Edward Snowden, a former technical assistant for the Central Intelligence Agency,... Read More

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Source: The Guardian via Getty Images

Edward Snowden, a former technical assistant for the Central Intelligence Agency, speaks during an interview in Hong Kong in this handout photo provided by The Guardian.

Booz Allen will bear the consequences even if it wasn’t at fault in the unauthorized disclosure, Sobel said.

‘On Watch’

“I’m sure there’s a certain amount of risk that’s unavoidable,” he said. “But at the end of the day Booz Allen was the company that was on watch when this happened.”

The company, the 13th-largest federal contractor, competes with Lockheed Martin Corp. (LMT), CACI International Inc. (CACI) and other firms for U.S. intelligence contracts.

Carlyle Group took Booz Allen private in 2008 and still holds 67 percent, according to data compiled by Bloomberg.

Snowden, 29, voluntarily disclosed that he had provided journalists with secret documents describing the programs, in a video interview posted Saturday on the website of the U.K.’s Guardian newspaper.

A former technical assistant for the Central Intelligence Agency, he has worked the National Security Agency for the past four years for various contractors, according to reports by the Guardian and the Washington Post, which said Snowden provided them with documents. He copied the last set of documents he wanted to disclose three weeks ago at the NSA office in Hawaii where he worked as a contractor, the Guardian reported.

‘Grave Violation’

James Fisher, a spokesman for Booz, declined to comment beyond a written statement the company posted Sunday on its website. The company said Snowden was an employee for less than three months assigned to a team in Hawaii.

“News reports that this individual has claimed to have leaked classified information are shocking, and if accurate, this action represents a grave violation of the code of conduct and core values of our firm,” according to the statement.

Any investigation that shows the company was “running a slack operation” might make it difficult for Booz Allen to win contracts involving classified information in the short term, said Charles Tiefer, a University of Baltimore law professor.

“Booz Allen may well get taken to the woodshed by the government for sloppiness in how it protected classified information,” said Tiefer, a former member of the U.S. Commission on Wartime Contracting.

Intelligence Community

William Loomis, an analyst at Stifel Nicolaus & Co. in Baltimore, said he didn’t believe Snowden’s leak would have a long-term impact on Booz Allen shares.

“Frankly, if someone is willing to throw their life away and do something like this, it’s hard to stop,” said Loomis, who has a hold rating on Booz Allen.

There will probably be a review of Booz Allen (BAH)’s process for securing information, and “assuming Booz didn’t have any flaw in their system, then I don’t see any impact on Booz’s business going forward,” he said. “It’s a high-quality company, very well respected in the intel community. My guess is they’ll fare OK in the evaluation.”

Mark Amtower, owner of Amtower & Company, a Highland, Maryland-based consulting firm that advises contractors, said Booz Allen may not be at fault.

Snowden had federal security clearances for the work he did and was a “natural fit” for a contractor seeking security work because of his previous work for the CIA, he said.

“What are you going to do?” Amtower said. “Tighten security requirements? They’re pretty stringent right now.”

To contact the reporter on this story: Nick Taborek in Washington at ntaborek@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net

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