Utah judge declines to detain former FBI agent tied to military fraud case
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A Utah federal judge on Wednesday refused to detain a former New York FBI agent who government prosecutors claim tried to derail a criminal investigation into a key figure in an alleged military fraud scheme.

Prosecutors allege Robert G. Lustyik Jr., 50, engaged in an "extensive scheme" that showed no regard for authority or the law, behavior they argued would continue unless he was in jail.

But U.S. District Court Judge Ted Stewart declined to put Lustyik in custody, saying the government failed to show he was a danger to the community.

Lustyik was arrested Saturday at his home in Sleepy Hollow, N.Y., and appeared before a magistrate judge in New York on Monday. That judge also declined to jail Lustyik but accepted prosecutors' request for stringent release conditions, including home confinement, electronic monitoring and a $2 million bail bond. During Wednesday's hearing in Utah, Stewart also barred Lustyik from using a computer or cell phone and said Lustyik's attorney must relay information through his wife.

Lustyik faces four counts of conspiracy, wire fraud, obstruction of justice and obstruction of an agency proceeding — a surprising change of fortune for a man his attorney described as having had a stellar law enforcement career.

Until his suspension and subsequent retirement on Sept. 20, Lustyik spent 24 years with the FBI's counter-intelligence squad in the New York field office. Much of his work involved enlisting and tracking informants and spies, according to his attorney, Raymond Mansolillo, and he had received commendations from such agencies as the CIA, NSA and Department of Defense.

But prosecutors allege greed drove Lustyik to use his position as an FBI agent to attempt to thwart a criminal investigation into Michael Taylor, with whom he had formed what promised to be a lucrative business relationship that involved gold, oil and alternative energy deals throughout the world.

Court documents say Lustyik met Taylor in 2009 and entered a business relationship just months before Taylor became the subject of a criminal investigation involving contracts for training and security services in Afghanistan. In that case, Taylor and two other men allegedly used inside information to land a contract that eventually netted them $54 million. Taylor, owner of American International Security Corporation, is currently being held in a Utah jail pending his trial in the fraud case.

According to prosecutors, Taylor allegedly asked Lustyik to block the investigation, promising him cash and a cut of business deals in South Sudan, Iraq and the United Arab Emirates. Lustyik first attempted to position Taylor as a source and then as a cooperative witness in the fraud case. He also enlisted numerous current and former agents as character witnesses for him. He never disclosed his business dealings with Taylor, the government says.

In one email exchange, Lustyik told Taylor, "I will not stop in my attempt to sway this your way" and described their goal as being "to blow the doors off this thing."

The government says Lustyik's efforts to help Taylor violated FBI rules against "unduly familiar" social relationships with sources and inappropriately influencing or impeding criminal investigations and show he "systematically and corruptly sought to undermine the very criminal justice system that he was sworn to serve."

Mansolillo told Stewart that many comments and situations used by the government to paint his client as a threat had been taken out of context. He said Lustyik's interactions with Taylor, whom he described as a high-level source for such agencies as the FBI, CIA and DEA, had been reviewed and approved by superiors. He said Lustyik's and Taylor's efforts were aimed at protecting his status as a source and shielding classified information.

"These are emails that get twisted and turned and misrepresented to the point it is becoming almost novel-like," said Mansolillo, characterizing Lustyik's remarks as "BS" aimed at keeping Taylor on track as confidential informant.

brooke@sltrib.com