"The motive of the abduction of the Lyon sisters was to sexually exploit, abuse and defile them," Bedford County, Virginia, Sheriff Mike Brown said.
Katherine and Sheila Lyon were reported missing 40 years ago after they went to a mall and never returned. Investigators had not made any progress in the cold case until 2013, when police detectives decided to reopen the investigation.
Welch told investigators he saw his uncle, Richard Welch, sexually assault one of the girls at Richard Welch's residence shortly after they abducted the sisters, Brown said.
Lloyd Welch also told investigators the sisters were taken so he and his uncle could sexually exploit them, the sheriff said.
Investigators told reporters they are not solely relying on information from Lloyd Welch in their investigation of Richard Welch, who has not been charged.
The sheriff also said they are investigating other members of the family.
"Richard Welch remains a person of interest in this case, as do other people," he said.
Richard Welch's daughter told The Washington Post
that her father committed no crimes.
"I think that they are going on allegations from people that are liars," she told the newspaper. "I think it's a witch hunt. I know in my heart my dad would not do something like that."
Lloyd Welch has been indicted by a Virginia grand jury on two counts of first-degree felony murder, the sheriff said at a separate news conference Wednesday.
Lloyd Welch, a child sex offender, will be extradited from Delaware, where he is in prison.
Search warrants unsealed Wednesday said relatives told investigators Lloyd Welch burned two duffel bags on the property in 1975, according to CNN affiliate WDBJ.
Brown said the indictment was a "significant milestone in solving the case" and that officials will continue to work toward prosecuting anyone involved in the kidnapping and killing of the Lyon sisters.
Some portion of the crimes were committed in Bedford County, a roughly 200-mile drive southwest of the girls' Maryland home, said Bedford County commonwealth's attorney Randy Krantz, who declined to disclose the evidence.
The episode began on March 25, 1975, when Katherine and Sheila walked to the Wheaton Plaza Shopping Center to see an Easter exhibit and grab a slice of pizza.
They were supposed to come home by 4 p.m. When they didn't, their mother called authorities and a major search ensued, according to the Charley Project, a website that profiles thousands of missing people, mainly from the United States.
The bodies of Katherine, 10, and Sheila, 12, have not been found.