Two More Spy Suspects Admit They Are Russian

Artist's rendering of, from left, Patricia Mills, Michael Zottoli, and Mikhail Semenko, standing, at their appearance in federal court in Alexandria, Va., Thursday, July 1, 2010. The three northern Virginia residents are accused of being foreign agents for Russia. AP Photo/Dana Verkouteren

Updated at 6:41 p.m. ET

Three suspects in the alleged Russian spy ring will remain in jail after waiving their right to a detention hearing Friday.

The defendants known as Michael Zottoli, Patricia Mills and Mikhail Semenko appeared briefly Friday in federal court in Alexandria, Va. Magistrate Judge Theresa Buchanan set a preliminary hearing for Wednesday for all three defendants.

In a court filing ahead of Friday's hearing, prosecutors said Zottoli and Mills have admitted they are Russian citizens living in the U.S. under false identities. They said their real names are Mikhail Kutzik and Natalia Pereverzeva.

Intelligence experts say Moscow invested heavily in the decade-long suburban spy program, CBS News Correspondent Bob Orr reports.

"This is about the most expensive way of conducting espionage and the most labor intensive way of conducting espionage which I think also contributes to why this is so strange," former CIA officer Mark Stout said.

Despite the use of sophisticated spy tradecraft - invisible ink, coded messages and clandestine meetings - the alleged spies apparently stole little of importance.

The pair was arrested in Arlington, where they have been living as a married couple with two young children.

Mills appeared pale and frightened as she sat next to her co defendant Michael Zottoli - with whom she has two young children - at the defense table, reports CBS News' Pat Milton. The two didn't speak to each other. Zottoli, who has short brown hair seemed unfazed by the proceeding in a court room packed with news reporters, attorneys, law enforcement and onlookers.

Prosecutors also said the couple had $100,000 in cash and phony passports and other identity documents stashed in safe deposit boxes.

The three are among 11 suspects arrested this week.

DOJ Letter for Detention Order: Mills, Zottoli, Semenko

Semenko, who was in the U.S. on a work visa, is not alleged to have used a false identity. But prosecutors said the FBI has searched his home and a second apartment that he recently leased and found computer equipment "of the type capable of being used for ... clandestine communications."

Judge Theresa Buchanan will decide whether they are to remain in custody pending future hearings.

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An 11th suspect, Christopher Metsos, was freed on bail by a judge in Cyprus after being detained there by police. On Friday Cyprus' Justice Minister said he believes Metsos has now fled the island.

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In the letter to Judge Buchanan, Assistant U.S. Attorney Jason B. Smith also said Mills asked a family friend who has been caring for their two children since their arrest to take them to Russia to Mills' sister and parents.

According to court documents, Zottoli claims to be a U.S. citizen, born in Yonkers, N.Y., and is married to Mills, a purported Canadian citizen. The FBI said the two lived together over the years in a number of locations, including Seattle, before moving to Virginia last year.

According to the charging documents, an undercover FBI agent posing as a Russian agent met with Semenko last Saturday in Washington, blocks from the White House. The agent gave Semenko a folded newspaper wrapped around an envelope containing $5,000 and directed him to drop it in an Arlington park. The documents say there is video of Semenko making the delivery as instructed.

Regarding Zottoli, authorities detailed several exchanges with other alleged coconspirators, in which he is accused of receiving thousands of dollars, laptops used to communicate with Russian officials and other items.

In June 2006, Zottoli and Mills traveled to Wurtsboro, N.Y., where Zottoli dug up a package of money that had been buried there two years earlier by another conspirator, the FBI said.

During a search of the couple's Seattle apartment, the FBI says, agents found a radio that can be used for receiving short-wave radio transmissions and spiral notebooks, which contained random columns of numbers. Authorities believe the two used the codes to decipher messages that came through the radio.

Semenko studied international relations at Amur State University from 2000 to 2005, former classmate Galina Toropchina said.

"He was a very good boy, unfortunately not all students are like him," Toropchina said.


New York Judge Denies Bail

A magistrate judge in New York decided Thursday that two other defendants, Cynthia and Richard Murphy, should remain in custody because there was no other way to guarantee they would not flee since it was unclear who they were.

But he set bail of $250,000 for prominent Spanish-language journalist Vicky Pelaez, a U.S. citizen born in Peru, saying she did not appear to be trained as a spy. The judge required electronic monitoring and home detention and said she would not be freed before Tuesday, giving prosecutors time to appeal.

Lawyers for Juan Lazaro, Pelaez's husband, asked to postpone his bail hearing just hours after prosecutors revealed in a letter to the judge that Lazaro had made incriminating statements.

A judge in a federal court Thursday in Boston gave Heathfield and his wife, Tracey Lee Ann Foley, of Cambridge, Mass., until July 16 to prepare for a bail hearing.

Not due in court Thursday was Anna Chapman, the alleged spy whose heavy presence on the Internet and New York party scene has made her a tabloid sensation. She was previously ordered held without bail.

Eight of the suspects are accused by prosecutors of being foreign-born, husband-and-wife teams who were supposed to be Americanizing themselves and gradually developing ties to policymaking circles in the U.S.

Most were living under assumed identities, according to the FBI. Their true names and citizenship remain unknown, but several are suspected of being Russians by birth.

In Cyprus, Louca told The Associated Press that the suspect was arrested as he tried to board a flight to Budapest, Hungary, with his girlfriend. The woman was allowed to board the flight since there was no Interpol notice regarding her, Louca said.

Investigators have Metsos' laptop computer in their possession but have not checked its contents, he said.


"They Were Minor League"

Much of the evidence against the suspects connects to a house in Montclair, N.J., home to two who called themselves Cynthia and Richard Murphy.

A court filing claims the FBI has gathered well over 100 decrypted messages between the Murphys and Russia's intelligence headquarters in Moscow. And prosecutors say a safe deposit box linked to that couple held "eight unmarked envelopes - each contained $10,000, in apparently new $100 bills."

In addition, hidden FBI microphones picked up potentially incriminating conversations inside the Yonkers, N.Y., home shared by another couple, Vickie Palaise and Juan Rizaro. They say in one conversation, they describe cash received from Russian handlers, saying the money is "in the photography (bag) and all over the place."

Now, prosecutors say Lazaro has admitted working for Russian intelligence and living in a house paid for by Moscow. After being read his Miranda rights, the suspect reportedly said Lazaro is not his real name, and while he loves his son, "he would not violate his loyalty to the 'Service'..."

The case has become a sensation due in part to the alleged involvement of flashy Manhattan socialite Anna Chapman, but there is no evidence Chapman or any of her co-defendants did any real damage.

"I would say they were minor league, they never made it into the majors," spy author and journalist David Wise said on CBS' "The Early Show." "But somebody in Moscow was happy to have them."

And, Orr notes, the fact is many of them were here for more than a decade, and that alone suggests a serious and continuing Russian investment in post-cold war espionage.


Hiding in Plain Sight

Bill Harlow, a former chief spokesman for the CIA and currently of the communications company 15-Seconds.com, said on "The Early Show" this morning the latest revelations indicate that, even though the Cold War is over, "the Russians are still hot on gathering new information about the United States - and they're using some very old methods."

"It's typical of the Russian M.O. to do this kind of thing," Harlow told anchor Harry Smith. "They're very patient. They take people, embed them into our society and they troll for information, trying to find information which eventually, down the road, may be of use to them."

Harlow said the "business model" employed in these deep-cover suspects is not the most efficient way of collecting information, but is typical of how the KGB operated in the 1950s and '60s.

"The Russians are very patient," Harlow said. "They bring people over here. They let them stay for years and years in hopes of getting them close to people who have information which would be available to them, and whether they hadn't yet reached that point, whether they ever would, we may not know.

But obviously, the Russians wouldn't have invested all the time, the effort, the rubles it took to carry off this mission if they didn't think they were going to get something out of it."


More on the Alleged Russian Spy Ring:

U.S. Embassy: We Don't Have 11th Spy Suspect
Russian Spy Suspects Set for U.S. Bail Hearings
Photos: Spies for Russia?
Interview with Accused Spy Anna Chapman
Who Are the Russian Spy Suspects?
Prosecutors: Accused Russian Spy Confessed
Hunt On for Missing Spy Suspect in Cyprus
The Case of the Russian Spies
Spy Suspect Wanted in U.S. Vanishes in Cyprus
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