He walked into the Dallas office of the FBI late on a Friday afternoon in 1980. Frank Varelli said he had information about some killings in his native El Salvador. He listed dates and places. He named names.
"We contacted the CIA and they verified the killings were committed," recalled Gary Penrith, then acting head of the FBI office. "So this guy looked like he might be giving us reliable information."
With the FBI's blessing, Varelli infiltrated the Dallas branch of a group he said was behind the slayings -- the Committee in Solidarity with the People of El Salvador, which opposed U.S. policy in Central America. Varelli reported, among other things, that members of the group were plotting to assassinate President Reagan. The FBI launched a massive investigation.
Years passed. Penrith went on to Washington to become one of the bureau's highest-ranking intelligence officials. Then he got the sickening news: Varelli had concocted his allegations. The investigation had been a costly waste of time.
"He was a wacko," said Penrith, one of six FBI officials disciplined for the embarrassment. Instead of receiving a hoped-for promotion to assistant director, he finished his 24-year career running the FBI's Newark, N.J., office.
"I'm not crying the blues," he said. "I'm just telling you what happens when an informant goes bad."
Whether investigating a terrorism conspiracy or trying to bust a burglary ring, authorities depend on insiders willing to share information. Yet dealing with informants is a treacherous business. Sometimes, as in Varelli's case, they mislead their handlers. Sometimes they seduce them. Sometimes they corrupt them. And sometimes, they turn the tables, leaking state secrets to foreign governments.
In April, authorities in Los Angeles arrested a Chinese American informant and alleged that she carried on affairs with two FBI counterintelligence agents who supervised her activities. The informant, Katrina Leung, allegedly passed classified information to the Chinese government. She has denied any wrongdoing.
Last fall, John J. Connolly Jr., a former FBI agent in Boston, was sentenced to 10 years in federal prison for protecting the sort of gangsters he was supposed to put behind bars.
Connolly became so close to his mob informants that he looked the other way while they committed extortion, ran bookmaking operations and allegedly killed rivals.
In an earlier but no less sensational case, Mark Putnam, an FBI agent in Kentucky, strangled an informant in 1989 after she threatened to expose their affair and her pregnancy.
People who provide information on criminal activities are called sources or snitches. Those who trade in foreign intelligence are known as "assets." By whatever name, they need to be handled with care, say FBI veterans.
"You hold on to a source the way you hold on to a snake," said Steve Moore, an agent in Los Angeles. "Very carefully and very firmly. And the problem is knowing how to let go of them."
FBI and congressional investigators are examining the recent scandals in Los Angeles and Boston, searching for insights into what causes some agent-informant relationships to go bad.
The FBI has stringent rules for employing informants and is tightening those rules. Yet the nature of the relationship between agents and their sources creates powerful temptations.
They share secrets, including the secret of their relationship. They spend lots of time together, often in private. Each wants something, and each works hard to build the other's trust -- and wear down the other's defenses.
Rick Smith, a retired counterintelligence agent from San Francisco, said that anyone peddling information about a foreign government needs special scrutiny.
"You have to figure out why they're talking to you," Smith said. "Because ultimately in counterintelligence, when you get someone to be a mole, they are betraying their country. And you need to know why."
In many cases, money is the motivation.
Smith recalled a European businessman whom the FBI recruited in the early 1980s to help foil espionage efforts by Soviet and Eastern European agents. In one case, the foreign agents asked the businessman to help them buy sophisticated computer equipment from the U.S.
"We found out about it," Smith said. "And we were able to alter the equipment and send them back things that didn't work."
The foreign agents went to a government-sponsored trade show in Sofia, Bulgaria, to show off their newly acquired gear, and were embarrassed. "They turned the stuff on and it didn't work," Smith said, chuckling.
Afterward, the European businessman felt he was worth more than ever to the FBI. "We'd already paid him a lot of money over the years, hundreds of thousands of dollars," Smith said. Now, the man was demanding $2 million and threatening to quit if he didn't get it.
"So I let him go," Smith said. "You can't be extorted. You can't let that happen."