An attorney for one of the defendants in the criminal conspiracy trial of Smith Bagley and four others alleged late tonight that an FBI agent on the case tried to browbeat his client into becoming a government witness.
The attorney, John Morrow, angrily accused FBI Special Agent Zachary T. Lowe of threatening Dewey Chapple, a former executive vice president at the Northwestern Bank in Winston-Salem, on July 3.
The hearing on the allegations before presiding U.S. District Court Judge Robert R. Merhige Jr. took place after the jury had been dismissed for the day.
The FBI agent flatly denied virtually all of the allegations when cross-examined by Federal Prosecutor Robert Clark. Lowe claimed he merely was seeking to assist Chapple, who had come to his office to review the prosecution's exhibits prior to the opening of the trial.
"Looking back, from the questions I was being asked, I feel I was being set up for something," Lowe said.
Morrow wants the charges against his client dropped on the basis of that day's exchanges with Lowe which totaled about 30 to 45 minutes. The other attorneys in the case appear ready to seek similar treatment for their clients.
Judge Merhige said testimony would resume on this aspect of the case Monday morning before the criminal trial resumes.
During the trial earlier today, a fromer director of the Washington Group Inc., saying he "chose loyalty over honesty," claimed that he had lied under oath to protect Bagley and another defendant, james Gilley, during testimony before the Securities and Exchange Commission.
The government witness, George Clayton, made this disclosure during the fourth day of the criminal conspiracy trial of Bagley, Gilley and three others here. Clayton said he had lied to the SEC during its investigation of Washington Group. That probe resulted in a civil suit filed on March 15 charging Bagley, Gilley and others with stock fraud.
The defendants, who were indicted March 14, are charged with conspiring to defraud banks, employes, and employe profit-sharing plans by using funds from those sources to inflate falsely the stock price of the Washington Group.
Bagley was president and Gilley chief financial officer of the Winston Salem Food and Textile Conglomerate, which went into bankruptcy in June 1977.
Clayton is an attorney from Morehead, N.C. Gilley's attorney, James Van Camp, in cross examination, sought to undermine Clayton's credibility. "You have admitted you are a perjurer and a liar. And you are a compulsive gambler," the attorney said to the witness.
Retorted Clayton: "I have gambled with a member of the defense team."
Clayton said he lied to the SEC when asked about the term of a $38,000 bank loan, arranged for him by Gilley, which enabled him to buy stock in the Washington Group.
An SEC attorney had asked Clayton if he had discussed the stock purchase with Bagley and Gilley, and he replied he had not. "I knew I wasn't telling the truth," he said today.
The Clayton testimony is important to government attorneys who are trying to show that between Feb. 1, 1974 and April 15, 1975 the defendants conspired to keep the price of Washington Group's stock artifically high. Among the ways they did this, says the indictment, was by arranging loans for Clayton and others to buy stock. Clayton, who says he is in dire financial condition, still owes $40,300 - principal and interest - on the stock loans extended to him on June 12, 1974 by the Northwestern Bank.
A key question in today's hearing was the contents of a letter that Clayton said Gilley has requested he write at the time of the $38,000 loan. The letter, addressed to Gilley, claimed the loan was made for "debt consolidation."
The letter was written, Clayton said, because it is illegal to borrow money from a bank to buy stock.