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From the story, I didn't get the sense that Dave didn't know that the shareware version used 40-bit encryption. But that it was a revelation for the author. Sounded like Dave didn't give up any information, other than the relevant version.

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I see so many tactics of an expert negotiator here. Being incredibly nice and respectful. They were able to get what they wanted. They were able to convince you of an issue, with urgency, without any evidence of the use of your code other than the words of the officer. The story could have absolutely been fabricated to obtain access to the source code per an initiative to have access to cryptographic software, or it could have been true.

Being NSA they could have easily have gotten source code in the covert way - one of the employees had copy at home, they emailed it around! But for encryption software there is no value in source code in the first place - algorithms are standard, and software can be disassembled anyway. All access to the source code does is allows them to save time on disassembly. Author knew all this and this is why he gave them source code in the first place.

Basically fabricating this story and risking exposure just wasn’t necessary.

Having the source code probably just saves time on the analysis of vulnerabilities and triggering timed glitches.

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