U.S. District Court Judge Robert R. Merhige Jr. said tonight he would "study very carefully" a motion by attorneys for Smith Bagley and other defendants to dismiss the major allegations in a criminal case against them by the government.
"If he rules for them in this motion, we haven't got a case," said Justice Department attorney.
At the same time, Merhige dismissed a number of other defense motions including one that alleged prejudicial preindictment publicity.
Bagley, a socially prominent Washington resident, and four other defendants are accused by the government of conspiring to manipulate the stock of the Washington Group Inc., a Winston-Salem, N.C., company.
The company is now being reorganized under federal bankruptcy laws. Bagley, an heir to the R.J. Reynolds Tobacco fortune, once headed the Washington Group.
The motion under study by Merhige claims the indictment:
Fails to state the defendants conspired to violate federal securities laws.
Fails to show violations of federal wire and mail fraud statutes.
Fails to show the defendants violated federal laws against misapplication of bank funds.
The defense motion goes to the heart of the government's case. The prosecution in the indictment alleges that Bagley and the others used bank loans and employe pension funds to manipulate the stock of the Washington Group.
The company's stock was traded publicly on the over-the-counter exchange. Besides Bagley, the other four defendants are James B. Gilley, also a former president of Washington Group; Dewey W. Chapple, former head of Northwestern Bank in Winston-Salem; William F. Thomas, a vice president of Interstate Securities Inc. in Winston-Salem, and Shirley M. Grubb, former secretary to Bagley.
Merhige emphasized several times during the 5 1/2-hour hearing that he expects the trial to begin as scheduled July 16, providing the motion under consideration does not result in dismissal of the indictment.
The case is slated to be heard in Federal Court in Greensboro, N.C.