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THE SITUATION ROOM

The FBI Disciplines Over 1,000 Employees, Fires 85; March 1st Marks Implementation Of Sequestration

Aired February 23, 2013 - 18:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


WOLF BLITZER, CNN ANCHOR: An Olympic track star and alleged murder, free on bail. So what is next for the blade runner, Oscar Pistorius?

Stunning allegations that the doctor secretly and illegally videotaped patients.

And after a brazen heist, can thieves sell $50 million without getting caught?

We want to welcome our guests from the United States and around the world. I'm Wolf Blitzer. You're in the SITUATION ROOM.

There is no deal in sight to keep the federal government from being hammered with $85 billion enforced spending cuts, beginning just days from now, that means pay cuts, layoffs for more for federal workers including those on Capitol Hill. But will the misery be shared by the law enforcements themselves?

Here is CNN's chief congressional correspondent, Dana Bash.

(BEGIN VIDEOTAPE)

DANA BASH, CNN SENIOR CONGRESSIONAL CORRESPONDENT (voice-over): Pain from forced spending cuts is a week away. And lawmakers are preparing their aides for fallout that could hit them like other government workers.

UNIDENTIFIED FEMALE: We have actually budgeted with a 10 percent cut in mind.

REP. DENNIS ROSS (I) FLORIDA: We re-organized our office last December. We had to let people go then, because we anticipated at least a 60 percent cut.

BASH: But get this, members of congress, the very people who voted to put the cuts in place won't see any change to their own $174,000 paychecks. They're exempt. They didn't include their salaries in the spending cuts.

So, before lawmakers left town with a week-long recess, without doing anything to head off the coming cuts -

Hey, Congressman. How are you? Dana Bash from CNN.

We took an informal survey. Do you think you should take a pay cut as well.

REP. MARK MEADOWS (R), NORTH CAROLINA: Well, certainly, I mean, we are all in it together and are suffering together.

BASH: Most lawmakers from both parties said yes. Would you take a pay cut?

REP. BEN LUJAN (D), NEW MEXICO: Absolutely. That's to make sure that we are doing our part as well.

BASH: But cutting their pay cuts is not so easy, the 27th amendment to the constitution prohibits members of congress from changing pay until after the next election, though, they can get creative by checks to charity or the treasury. Ironically, some tea party backed lawmakers who can't paid on slashing federal spending are reluctant to give up their own pay. Do you think that members of congress should cut their pay?

REP. BILLY LONG (R), MISSOURI: I don't think so.

BASH: Republican Billy Long was elected in 2010 to cut the Washington spending. Be include in that?

LONG: I don't think it would have an effect.

BASH: Will you, personally, as a member of congress, take a pay cut as well.

Michele Bachmann answered that question as several times talking only about her staff, not her.

MICHELE BACHMANN (R), FORMER PRESIDENTIAL CANDIDATE: We would like to keep everybody on the payroll, if we can. But they will have to work fewer hours. So, we are looking at reductions on our staff and that is what we need to do.

BASH: Ironically, one of the bigger opponents for Congress cutting pay is one of the wealthiest. Nancy Pelosi says she knows others are not so fortunate.

NANCY REP. NANCY PELOSI (D-CA), MINORITY LEADER: Most of my colleagues are the bread winners in the family, a pay cut to me doesn't mean as much.

BASH: Dana Bash, Capitol Hill.

(END VIDEOTAPE)

BLITZER: Beyond the issue of their own salary, some lawmakers are going out of their way to show they are saving taxpayers' money in other ways. Senator Rand Paul, this week, announced he is returning $600,000 from his office operating budget to the federal treasury. He said he can do that by cutting costs from everything from paper to ink cartridges.

Thousands of people's jobs depend on the defense department are facing furloughs. They will be forced to work four-day weeks and take off a day without pay and that is going to hurt.

Our Pentagon correspondent Barbara Starr is joining us. She has one worker's story. Tell us what is going on, Barbara.

BARBARA STARR, CNN PENTAGON CORRESPONDENT: Well, you know, Wolf, we have been hearing this fancy Washington word, sequester, for weeks now. But now, the reality is hitting hundreds of thousands of defense department workers facing a smaller paycheck.

(BEGIN VIDEOTAPE)

STARR (voice-over): Maintaining fighting jets and war ships at the ready. Providing care at military hospitals. Crucial military functions don't by some 800,000 civilian workers.

Now, the Pentagon has told Congress these workers will be forced to stay home one day a week, without pay, if mandatory spending cuts are not averted.

PETER RANDAZZO, NAVAL POSTGRADUATE SCHOOL: Everybody is waiting to hear. It has definitely become the new, what I call the new "f" word here is furlough.

STARR: For federal workers, it would mean painful decision. Union rampant defense department worker, Peter Randazzo is already making plans.

RANDAZZO: I will pay the core bills, I will pay the mortgage and the utilities and then you live on what is left.

STARR: The head of the government workers union says his people have already suffered.

J. DAVID COX, PRESIDENT, AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES: Already these employees have suffered a 27-month pay freeze now, a 20 percent pay cut.

STARR: The impact of a one day a week furlough for 22 weeks will be widespread.

JESSICA WRIGHT, ACTING UNDER SECRETARY, DEFENSE FOR PERSONNEL AND READINESS: On our civilians it will be catastrophic. These critical members of our work force, they work in our de depots, and maintain and repair our tanks, our aircrafts, our ships, they teach our kids.

STARR: But how much do furloughs really save? Of the $46 billion in mandate in military cuts, the Pentagon calculates it will account for 10 percent. The number two official at the defense department is vowing to stand with his workers.

ASH CARTER. DEPUTY DEFENSE SECRETARY: I can't be furloughed under the law because I'm a presidential appointee, but I'm going to give back a fifth of my salary in the last several months of the year.

(END VIDEOTAPE) STARR: Now workers who are required to maintain safety and security of defense department facilities will be exempted. Pardon me, but consider this, 84,000 children who attend DOD schools around the world, their teachers will be furloughed one day a would be and those kids will have a very tough time completing the full school year -Wolf.

BLITZER: How much discretion, Barbara, do the Pentagon officials have? For example, can they get rid of some very expensive big ticket weaponry jets for example, instead of ordering people not to work?

STARR: Well, not at this time, Wolf. Because the sequestration as it is called, the mandatory budget cuts are across the board. That is why Leon Panetta, the defense secretary, has been calling this a meat axe approach, no discretion, almost none. And so, it is across the board and everybody has to take an equal hit.

BLITZER: The military will not furlough foreigners, though, who work on U.S. bases around the world. Only American employees, why is that?

STARR: Well, that is right, Wolf. In places like Japan for example, where the U.S. military has a significant presence, what they face is in some cases, it is the local government that pays the workers. So the furlough does no good. Or they would have to open up the government to government agreement that governs these facilities and that would take some time in diplomatic effort. So, they just are not going to furlough the U.S. workers overseas, Wolf.

BLITZER: Barbara star, thank you.

Exactly, how will the budget cuts be implemented if, if no deal is struck to head them off over the week.

CNN's tom Foreman has a closer look at how it will all work.

TOM FOREMAN, CNN CORRESPONDENT: You know, Wolf, one of the things that is puzzling about, this is no one seem to really know in Washington exactly know how this will work. But, we are getting an idea, that it is not just because there will be 10 percent cuts across the agencies that the impact will be felt by people. But more importantly, the way the cuts will probably be administered, probably, because we don't know how any given department will be able to handle it.

So, let's talk about a department that doesn't really exist, the federal bureau of dog grooming. And let's talk about the principle on how this will be done, 10 percent cuts, you can look at this. Let's say 50 billion for salary, 30 billion for supplies, ten billion for conferences, five billion for administration and another five billion for dog rescue. Out of this big budget you would think they would say let's cancel the conferences this year, there is our 10 percent. And nothing really suffers. We can take care of supplies. Everything is goods. You can still rescue the dogs

Here is the problem though, under the rules of sequestration, as best we can understand then, they cannot do this. Everybody we talked to said this would be a line by line cut. Each program has to be cut within the department. So what you wind up with is 10 percent off everything. Things that you might be willing to get rid of, you lose 10 percent of that. Things you want to hold onto, you lose 10 percent of that. And if you take this one out, you don't get any credit anywhere else. That, Wolf, is why some people say these cuts are draconian, the rules will simply make it be effective. A lot of programs the neither Democrats nor Republicans want to affect the rules will simply make it be effective.

BLITZER: Tom Foreman, thank you.

To hear President Obama tell it the sky will fall on March 1st, where $85 billion on those forced spending cuts kick in. So, is the White House hyping the impact or not? We are going to talk about that and more when we come back.

(COMMERCIAL BREAK)

BLITZER: President Obama clearly wants all of us to be very worried about the budget axe that is about to fall. He is warning that a lot of people will lose their jobs if forced spending cuts are allowed to take effect only days from now. And he says many more Americans will suffer at least in some way. Listen to a little mash- up of his latest attempt to light a fire under congress.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Meat cleaver approach jeopardize military readiness, at this rate education, energy, medical reserve, emergency responders, degraded. Border patrol agents, reduced, FBI agents, furloughed, Federal prosecutors, let the criminals go, airport security, cut backs, thousands of teachers played off, parents, flu vaccines, cancer screens, threat of these cuts not well thought through. Not smart, not fair, it will hurt out economy. This is not an obstruction. People will lose their jobs.

(END VIDEO CLIP)

BLITZER: All right, let's bring in our chief political analyst Gloria Borger, and our senior political analyst Ron Brownstein, the editorial director of 'the National Journal."

Bloomberg had a poll, guys, should force spending cuts be delayed? Fifty four percent said yes, 40 percent said no. Is there actual momentum, though, Gloria, to delaying it this, to stopping this if it is so horrible?

GLORIA BORGER, CNN CHIEF POLITICAL ANALYST: No, Wolf. Everyone I have talked to seems to pretty well say you know what? This is going to happen and that is because politically, both guys thinks it could actually work for them. You know, the president thinks he has got the Republicans on the corner. They don't want to give on the tax side as they are again for the wealthy, don't want to close tax loop holes on the wealthy. And the Republicans are saying, you know what, we took -- we raised taxes on the wealthy just six or seven week ago, the public is with us. The public wants to seriously cut spending. No one wants to do it this way, but either sides think they have an advantage.

BLITZER: This is across the board, the meat-cleaver cut is very stupid. Everybody agrees to that. And the president did call up late in the week, on he did speak with House speaker John Boehner, with the Republican leader and senator Mitch McConnell, do you see any way out of it?

RON BROWNSTEIN, CNN SENIOR POLITICAL ANALYST: Not probably without it going over occurring in the first place. The only way out would be a backlash that force them to reconsider.

BLITZER: Afterward.

BROWNSTEIN: Afterwards.

You know what makes it even kind of more doubly kind off target is, it is not only the across the board nature, it is across the board cut aimed at the portion of the budget that almost no one considers a real problem. The discretionary spending is shrinking to levels we haven't seen since the 1950s as a share of the economy. It is where we make all of the investments in the future, in education, infrastructure, research. That is the sole focus of these cuts. Almost completely exempted are the entitlements.

BORGER: Except for the military.

BROWNSTEIN: Except for the military, defense and discretionary. But the entitlements, in terms of Medicare and Medicaid in particular, are almost completely Social Security, add Social Security here in another different category. But that, everybody on both sides agree is the long-term challenge. So, not only is the board nature of the cuts misguided, but the fact they're focusing on what is not clearly the problem in terms of the longer deficit.

BORGER: You know, and if they were to agree to do something like on the means test Medicare, which means that the wealthy would pay a little bit more into Medicare, which is something that both Democrats and the Republicans and the president have spoken about. If they were to agree to do that, they could really make some serious in-roads into future deficit reduction. But right now --

BROWNSTEIN: Right, right.

BORGER: That is not on the table. So it is kind of nuts.

BROWNSTEIN: Entitlements and revenues are the long-term challenge. Or do we have enough revenue to fund the government, in which seniors are going to be doubling in the next 30 years? And are we restraining entitlements so that senior growth is not simply crowd all of the spending and further the imbalance and be ready have the budget touting too much for the all of the expense of the young? That is the real issue, and yet because of a series of political failures over the last two years, here we are with across the board cuts and discretionary spending.

BLITZER: What they really need is a big deal including entitlement reform, including Social Security, Medicare, Medicaid, coupled with tax reform at the same time. Because everybody says there should be tax reform, but the Republicans don't want to do it unless it is coupled with entitlement reform and it is a huge problem.

BORGER: They're talking past each other at this point and the public knows it. And which is why a third of the public if you look at the polls is not paying attention. And by the way, independent voters, very important are split on whether we just ought to let it occur, or not.

BROWNSTEIN: It is a political problem, not a policy problem. Every commissioner that has looked it at it, basically comes up with the same reform. But when President Obama says that in 2012 election would lead to a fever and lead to a situation more like 1997 where the two sides felt look, we are going to be here for a while, let's make from deals. That simply is not happening on this court.

BLITZER: And David Brooks, our friend, are the columnist with "The New York Times," wrote this among other things. Sequestration may have seemed insane back then. But politicians of both parties are secretly discovering that they love sequestration now.

BORGER: Right. Because as I was saying, they both believe -- each part believes there is a political advantage in this. And so, what was unthinkable when they came up with cock-mania (ph) idea, by the way, which all, everyone thought was crazy and would never occur --

BROWNSTEIN: And it was designed not to occur.

BORGER: It was designed not to occur in the summer of 2011, now, now they look at it and go wait a minute. Maybe it is not such a bad idea because in a way they don't have to do the work.

BLITZER: It forces them to make some cuts.

BROWNSTEIN: This just puts of the real issue. We have a Republican house. We have a democratic president. We have a legitimate long-term deficit challenge. Both in terms of the entitlements and whether we have enough revenue to fund what is going to be required as our society ages. Sooner or later, we have to address the problem, it doesn't address the problem.

BLITZER: Here is, Gloria, what makes people crazy out there, we seem to be going from one crisis, financial crisis to another financial crisis to another financial crisis that everybody seems so inept.

BORGER: Well, that is because they are, honestly. And that is because they continued to kick the can down the road. I have a list here, go back to December 2010, summer 2011, January one, you just had the fiscal cliff. Now, we have the March 1st deadline, and then by the way, March 27th, we have another deadline about shutting the government down.

So, can you blame the public for sort of tuning it out and just giving Congress what is it, a 15 percent approval rating? And by the way, the president's approval rating will, I bet, go down, as well.

BROWNSTEIN: All of these financial crises are really a manifestation of the same political crisis. We have the same two mirror coalition of this side, the democratic coalition, the Republican coalition, the Democrats, where they structure advantage of the White House level that won five out of six popular votes, the Republican, the structure of the house, neither of these forces are going away. And the core issue is, are they willing ultimately to find a bridge between their views and reach a reasonable approach to going forward? Because without it, this is just we just keep banging into the same wall and the same idealogical dispute.

BORGER: And they will only do it if it is in their best interest. For example, I believe they will do something on immigration because it is in their best interests for the Republicans as well as the Democrats to do it. When they finally understand that it is in their best interest because they are actually endangering the economy, maybe they will get something done.

BLITZER: And let's remember, the idea for sequestration is force spending cuts originated in the White House, but almost all the Republicans joined the house of Representative join the Democrats in voting for it. So there is a lot of blame to go around.

Hey guys, thanks very much.

Coming up, a CNN exclusive, shocking information about the FBI employees, everything from sex to, get this, bugging a boss's office.

(COMMERCIAL BREAK)

BLITZER: It is a laundry list of bad behavior, some of it criminal, including mistresses, nude photographs, check fraud and special favors. CNN has learned all of this and more has obtained in confidential FBI internal reports on misbehavior by FBI employees.

Drew Griffin of CNN special investigation unit has an exclusive report.

(BEGIN VIDEOTAPE)

DREW GRIFFIN, CNN INVESTIGATIVE CORRESPONDENT (voice-over): The FBI's motto is fidelity, bravery, integrity, agents take down bank robbers and the mob. The FBI's polished image kept in the spotlight by countless TV shows and movies.

UNIDENTIFIED MALE: I'm with the FBI.

GRIFFIN: But there is another side to the FBI, contained in these confidential internal records obtained by CNN that show serious misconduct by employees, and even supervisors. Assistant FBI director Candice Will oversees the office of special responsibility. She sends out the reports four times a year to all 36,000 employees.

CANDICE WILL FBI ASSISTANT DIRECTOR: We do our very best, we don't obviously, if you know anything about our quarterlies and they're not a public document but we know that doesn't mean that CNN doesn't have a copy. There are no names. There are no locations. There are no job titles, we do our very best to sanitize the quarterlies so that the employee's identity is protected while imparting as much knowledge as we can about what happened, so that the employees can learn something from it.

GRIFFIN: CNN obtained these summaries from the last year that include an employee who hid a recording device in a supervisor's office and did an unauthorized search of the office. Another involved in a domestic dispute at a mistress's apartment, in which the police were called. Another hid or destroyed electronic evidence and one other employee repeatedly committed check fraud. And then there is the employee who married a drug user dealer and lied about it. All of them were fired.

Knowing what this agency does and what this agency is about, how can anybody be so stupid?

WILL: Well, you know it is funny we say that because we do. We look at our cases and we are struck sometimes. I've been doing this a really long time. I have been doing this nine years at the FBI. And as long as I have been doing it, and there are days when I think OK, I have seen it all. But, I really haven't. I still get files and think wow, I never would have thought of that.

GRIFFIN: But, I have to tell you. I don't think I would have ever bugged my boss's office, especially if my boss was an FBI agent.

WILL: Oh, I know, it is extraordinary. I agree with it. There are some sort to do just kind of take bait and that is one where planting a recording device and writing to a briefcase and then lying about it. That is why that is a former employee.

GRIFFIN: The internal reports show a 14-day suspension for the employee who paid for a sexual favor at a massage parlor. Using a personal cell phone to send nude photos to another employee got a ten- day suspension. But there was only a five-day suspension for an employee who repeatedly used a government-issued blackberry to send sexually explicit messages to another employee at work.

These actions followed misconduct, we reported two years ago that included sleeping with informants and viewing pornography at bureau computers. Is that enough punishment for these kind of behavior?

WILL: Keep in mind if you lose a week's pay, that hurts or two weeks' pay for some of those case. And you know, we have seen a rash of texting cases, and neutral bad cases and people using the blackberries for these reasons, and we are hoping that getting the messages out in the quarterly is going to teach people you can't do this stuff. You know, when you're given an FBI blackberry, it is for an official use. It is not to text, you know, the woman in another office who you found attractive or to send a picture of yourself in a state of undress.

GRIFFIN: In the last three years, the FBI disciplined 1,045 employees, 85 were fired. Will says the internal warnings sent out by her office do deter bad behavior.

Drew Griffin, CNN Washington.

(END VIDEOTAPE)

BLITZER: As for what FBI employees are saying, we reached out to the president of the FBI agents association who told us as bad as it looks quote "quoting and keep in mind, the number of ratio of disciplinary issues among FBI agents is among the lowest of the federal government and private sector." We are really talking about a small fraction of people doing some incredibly very stupid things.

It is the case being watched around the world. The famed Olympian, Oscar Pistorius charged with murdering his girlfriend. A South African judge has made a decision that Pistorius' bail hearing. We are going to tell you all the things "the blade runner" won't be doing any time soon.

(COMMERCIAL BREAK)

BLITZER: He was one of the biggest starts to emerge from last summer's Olympic Games. Now, Oscar Pistorius, also known as the "Blade Runner," is charged with murdering his girlfriend. His bail hearing this week was full of drama, from Pistorius breaking down emotionally to a detective getting pulled from the case after his own unrelated murder charges came to light. And it all culminated Friday with the judge's ruling.

(BEGIN VIDEO CLIP)

VOICE OF CHIEF MAGISTRATE DESMOND NAIR: (INAUDIBLE) in the affidavit, in the way that he did, placing it before the court, together with the fact that none of the factors that need to be established have been established, I come to the conclusion that the accused has made a case to be released on bail.

(END VIDEO CLIP)

BLITZER: Robyn Curnow is joining us now from Johannesburg. Robyn, let's move this story forward now. What do you think? Where do you think we go from here? How long before the actual trial, for example, begins?

ROBYN CURNOW, CNN INTERNATIONAL CORRESPONDENT: Okay, well, I've been speaking to legal experts, and they believe that even if this is pushed through quickly, which is probably likely to be done because it is such a high-profile case, you are only looking at a trial date being set by the end of this year, perhaps early next year. And then bear in mind, again, because it is so high profile and because there is so much conflicting information on what happened that night, it is believed that the trial could take as long as a year. So we're looking at potentially two years before there is any final verdict. BLITZER: So he is out on bail. His coach says he's going to start training again as early as Monday. Listen to this, listen to this.

(BEGIN VIDEO CLIP)

AMPIE LOUW, PISTORIUS' COACH: I think just to get his mind sort of cleared, the sooner he can start with a bit of work, the better.

I'm ready, we can start training Monday if he is out on bail.

(END VIDEO CLIP)

BLITZER: So what kind of restrictions will he be under? Will he be able to go about training, travel, if you will, domestically, obviously, within South Africa? What kind of restrictions will he have.

CURNOW: Well, there are quite interesting restrictions coming out of the bail conditions. First of all, he has to report to a police station on a Monday and Friday. And also interestingly, they say he can't go anywhere near an airport. And of course, he can't go to his home where the crime scene - where the crime took place. And also, significantly, although I'm not sure why it is significant, he is apparently not allowed to drink alcohol. And that is one of his bail conditions.

But in terms of him training, his family lives here in Pretoria. We're not sure where he will be living. And his training facilities are literally a few blocks away from here at the local university. You know, I filmed him there a number of times going around that track. So -- and his coach is based here. So I assume he will be based still in Pretoria.

In terms of whether he is physically and mentally strong enough to start to train, Wolf, I tell you, he really looks like a broken man. A number of us have been saying just in the past weeks since that tragedy, Oscar Pistorius looks like he has aged ten years. Looks like he is going gray, he's obviously lost a lot of weight. This is a man who has fundamentally realized the implications of that awful deed that he admitted to doing on Valentine's Day. And I think he is very much a broken man, clearly looks in shock. And I think his family, and I understand from his family, that they are going to keep a very close eye on him. Whether it is in any state to actually go training or running, I don't know actually.

BLITZER: Well, we'll soon find out. Robyn, thank you very much. Robyn Curnow reporting for us from Johannesburg.

Other news we're following, you may have heard about the massive hacking operation, targeting companies like Coca-Cola, security companies like RSA, American oil pipelines and even power grids. The hack was traced back to a building in a military complex in China. We sent CNN's David McKenzie to Shanghai to that building in Shanghai to find out what it was. And he was chased, watch this.

(BEGIN VIDEOTAPE)

DAVID MCKENZIE, CNN INTERNATIONAL CORRESPONDENT: Driving in the northern part of Shanghai, this is a hub of low tech industry, but it's also allegedly a high tech hub of corporate and potentially government espionage. The allegations come from a group called Mandiant from the U.S. They say that there are tens, if not hundreds, of Chinese hackers working in conjunction with the Chinese government to hack into most of the U.S. companies and steal data and corporate secrets.

Mandiant says after years of investigations, they pinpointed the hacking to this group of buildings. They said that the hackers would go in to an institution through back door means and spend potentially years there stealing secrets. Some of these industries were national security industries, like aerospace, high tech and IT.

It's clear that this installation of buildings is closely watched by the people's liberation army. And the allegation is that they're working in conjunction with civilian hackers. As we got closer to take a look, we got in trouble.

Keep driving. Drive away. Drive away. Drive away.

We've had to move out of sight of that facility. Now, the question is, was that response because it's a military installation, or is there something more here? Is this a secret center of Chinese bloggers working for the Chinese government and attacking U.S. institutions? That's certainly what Mandiant is saying. But the Chinese government says that's not the case. They say this is a baseless accusation and, quote, "irresponsible."

Chinese say that 14 million computers are hacked every year here in China, and they blame the U.S. The question is, is this just the next salvo in a cyber war?

David McKenzie, CNN, Shanghai.

(END VIDEOTAPE)

BLITZER: Let's get some more with the head of the company that uncovered all of this. Kevin Mandia is the CEO of Mandiant. He's joining us here in THE SITUATION ROOM.

Kevin, thanks once again for coming in.

KEVIN MANDIA, CEO, MANDIANT: Thank you.

BLITZER: All right, you discovered this building in Shanghai, you put it in your report. Are you surprised by what we just saw from our David McKenzie?

MANDIA: I have got to admit, I'm surprised they almost caught the car, so that was pretty impressive.

But, yes, I think that sort of bolsters and confirms the report. We spent seven years investigating this group. And two things led us to that exact location. One, all the technical threads, all the geeky evidence led us right to Shanghai to this one place. And then open source collections about this unit 61398 and the buildings that it used led us to the exact same location. There's pretty much no doubt in our minds this is a government-run facility for hacking.

BLITZER: Now, they're clearly upset by your report. They don't like the fact that that building has been pinpointed. As soon as I heard about all of this, I said to myself, these guys are pretty sophisticated. How worried you that they're going to going to try to target your company, Mandiant, try to hack into your computers?

MANDIA: I think that's almost inevitable.

Right now, we know they have tried to break into Mandiant before. In the report that we published that is 60 pages long, there's an example where they impersonated me, impersonated my e-mail address and sent it to two Mandiant employees, trying to break in. And that's commonly how they do it.

I'm very convinced there will be some repercussions in cyberspace from Mandiant.

BLITZER: But you have a lot of precautions, I assume.

KATE BOLDUAN, CNN ANCHOR: Yes. What do you do?

MANDIA: We have as many precautions as we can have. I just think that they exploit human vulnerability and human weakness, and we have got over 300 employees. It only takes one of them to be kind of foiled or fooled into doing something and we could have compromise.

BLITZER: Just hit a link and it goes in and it could smash your whole thing.

BOLDUAN: Exactly. Just today, the Obama administration, they rolled out their trade secret theft strategy, that's what they're calling it.

I want to read you some of the priorities that they laid out in this. It says they want to convey to countries with high levels of incidence. This is really relating to exactly what you have uncovered. They also say, press governments on protection and enforcement, give private sector warnings and threat assessments, increase public awareness of threats and risks.

This comes just a day after your report is put out, I mean, seven years after all the work you have done. So what you see here from the Obama administration, is that good news? Does that change anything, in your view?

MANDIA: There's a couple things that came out of this. When you respond to this many intrusions, you see all the theft of intellectual property that we have witnessed, you recognize there's technical solutions that we have got to pursue, but there's never going to be the Holy Grail, where we have got the whole field covered. So you need diplomatic things done as well. And that's one of the reasons why Mandiant released its report, is we felt the tolerance in the private sector, that it's just shrinking. People are sick and frustrated with how much I.P. we have lost to Chinese hackers. So we felt it was just a natural timing. Let's get this report out, let's up the ante, and I think there's a real challenge on the diplomacy side of things.

But one thing that struck me is that they said they would increase our diplomatic engagement. I think that's automatically good. Without diplomacy, technology alone is not going to solve this problem.

BOLDUAN: So good news, in your view, what you heard from the administration today? A first step?

MANDIA: Certainly top of mind now, which is good.

BOLDUAN: Yes. I guess it's good news.

Kevin Mandia, thanks so much for coming in yet again. Good work.

BLITZER: Good luck not getting hacked.

(CROSSTALK)

MANDIA: Thanks a lot.

BOLDUAN: Not getting hacked. That is true.

BLITZER: And just ahead, a SPECIAL REPORT.

BRIAN TODD, CNN CORRESPONDENT: I'm Brian Todd in Baltimore. There are shocking new allegations against an OB-GYN doctor who worked at this hospital in Baltimore. Did he record his patients in the examining room without their knowledge? I'll have that story coming up.

(COMMERCIAL BREAK)

BLITZER: Truly shocking allegations that a doctor may have secretly videotaped his patients with hidden cameras. Brian Todd's coming into THE SITUATION ROOM. He's been working on this story for us. Brian, what are you learning?

TODD: Wolf, police tell us that at least one of those cameras was hidden inside a pen. Baltimore police say hundreds of Dr. Nikita Levy's patients have contacted them to give information on the case, and they say they're combing through an enormous amount of evidence.

(BEGIN VIDEOTAPE)

TODD (voice-over): For about 25 years, he worked as an ob/gyn at this medical center, affiliated with Johns Hopkins Hospital in Baltimore. Now Johns Hopkins and Baltimore police say Dr. Nikita Levy illegally photographed his patients and possibly others without their knowledge. ANTHONY GUGLIELMI, BALTIMORE POLICE SPOKESMAN: One of the cameras that we can confirm is a pen camera, and there are other types that we don't want to get into, again, given the sensitive -- sensitivity of the investigation.

TODD (on camera): How many cameras were in the office?

GUGLIELMI: Multiple. There were multiple cameras. I really can't get into a number.

TODD (voice-over): Nor can police say what else the cameras were hidden in. They say they're examining, quote, "a mountain of evidence." Still and video cameras, multiple computers, servers, external hard drives. They're investigating whether Levy might have had an accomplice and...

GUGLIELMI: What did he do with this information? Did he sell it? Was it put on the Internet?

TODD: Some of Dr. Levy's patients spoke to CNN affiliate WJZ.

JESSICA WIMS (PH), PATIENT: Dr. Levy was the sweetest person. This is all -- this is just shocking.

TASHA BYNUM, PATIENT: That's a violation. You understand what I'm saying? That's somebody you're supposed to trust with your body, your information, which is supposed to be confidential.

TODD: And now Dr. Nikita Levy can't answer the allegations.

(on camera): After learning of his alleged transgressions on February 4, Johns Hopkins Hospital says they suspended Dr. Levy the next day. They say they terminated him on February 8 and offered him counseling.

Ten days later, just this past Monday, police here in Towson, Maryland, responded to a call here at Dr. Levy's home. They say he was dead when they arrived. They're investigating it as a suicide.

(voice-over): Johns Hopkins says it promptly reported Levy's alleged activity to the police. In a statement, Johns Hopkins says, in part, "An invasion of patient privacy is intolerable. Words cannot express how deeply sorry we are for every patient whose privacy may have violated." The hospital says his alleged behavior violates its conduct and privacy rules.

Attorney Andrew Slutkin says he's been contacted by at least 25 patients of Dr. Levy's. I asked him how the alleged behavior was discovered.

ANDREW SLUTKIN, ATTORNEY: The story is that a Johns Hopkins employee noticed something unusual about Dr. Levy's examinations on February 4 and alerted a supervisor.

TODD (on camera): Do you know what that was?

SLUTKIN: No, we don't. No one knows at this point what it was other than Hopkins, and they're not speaking about the issue.

(END VIDEOTAPE)

TODD: Johns Hopkins says it's conducting its own investigation. We couldn't reach Dr. Levy's attorney for comment. I went to Dr. Levy's home and knocked on the door to see if anyone would speak on his behalf. A gentleman who answered the door declined to do so and said, quote, "This is all news to us." Wolf?

BLITZER: Yes, a whole bunch of patients are upset about the way they found out about all of this.

TODD: That is right, a lot of patients have complained to the attorney, Andrew Slutkin and to others, that they found out about a lot of this from the news media and are upset that Johns Hopkins didn't contact them. Now, Johns Hopkins told us they're communicating with patients as fast as they can, based on what police have told them they are allowed to say. They're brushing back a little bit this. They're saying hey, we're doing the best that we can to reach out to all these patients. But how many are affected? Not known right now.

BLITZER: It goes back a few years, too.

TODD: That's right.

BLITZER: That's right.

Brian Todd, thanks very much.

And coming up, $15 million worth of diamonds stolen in a brazen heist. Could they be headed to a jewelry store near you?

(COMMERCIAL BREAK)

BLITZER: Fifty million dollars' worth of diamonds stolen in a brazen heist at the Brussels airport. So, what are the chances any of those pieces could end up in a necklace or a ring like these? We sent CNN business correspondent Zain Asher to New York City's Diamond District for some answers.

(BEGIN VIDEOTAPE)

ZAIN ASHER, CNN CORRESPONDENT (voice-over): Straight from a Hollywood movie, masked gunmen commandeering an armored vehicle during a botched heist. But in this real-life plot, things go precisely as planned. The thieves have already managed to steal the diamonds; now they just have to sell them.

JOHN KENNEDY, JEWELERS' SECURITY ALLIANCE: You don't just get $50 or more, however much it is, in diamonds and then say, how are we going to get rid of this? You've arranged beforehand to do that.

ASHER: Usually with the help of fences, illegal wholesalers willing to buy stolen diamonds for less than they're worth and selling them at a profit. DONALD PALMIERI, GEMPRINT CORPORATION CHAIRMAN: Whoever thinks they're buying bargain basement diamonds should be careful because we're going to be able to find them sooner or later.

ASHER: Experts say these stolen diamonds might be sold for just 30 cents on the dollar, possibly ending up in a foreign country where controls are nowhere near as strict.

KENNEDY: You're talking, you know, an India, Israel countries that have very large diamond facilities.

ASHER: But the thieves will have to make sure the diamonds don't get traced.

KENNEDY: They may, in fact, try to conceal some piece of it for some period of time. They may not want to get rid of $50 million at once. It may be too difficult. There aren't a whole lot of people who have the means to come up with payment that quickly.

ASHER: They'll also be up against state-of-the-art technology. Some polished diamonds have a unique fingerprint, allowing them to be matched to stolen diamonds in an international database.

PALMIERI: It's actually very simple. We just place the diamond, table them on the optical glass. We center it. We close the door. And we run it.

ASHER: Retailers are also strict about the diamonds they buy, demanding a GIA-grading report which lists each stone's unique characteristics, possibly helping identify stolen ones. So, you will not accept any diamond from anybody that comes to sell to you, diamonds without this report.

ADAM BAZELL, DIAMOND CONSULTANT, SHENOA & CO.: That's correct. It has to have a report showing that it's gone through the right institutions.

ASHER: But retailers admit that even stolen diamonds can have certificates and thieves will often have diamonds re-cut to make them harder to trace.

KENNEDY: The people they're going to sell them to are going to be corrupt people. They're not going to be selling it in the open market to the normal buyer in due course.

ASHER: And it is in every jeweler and diamond-cutter's best interest that these stolen diamonds are recovered because, if too many stolen diamonds saturate the market, the price of diamonds could fall and that impacts the industry as a whole.

Zain Asher, CNN, New York.

(END VIDEOTAPE)

BLITZER: When we come back, rats invading parts of New York in the wake of Superstorm Sandy. You will find out what is being done about the complaints.

(COMMERCIAL BREAK)

BLITZER: Here is a look at the Hot Shots. In India, women washed their sorries in the river as part of a Hindu religious festival. In New York, school buses venture out in the rain to start their morning commutes. In Scotland, people take a stroll on the flowered covered grounds of an estate in St. Andrews. And in Singapore, a orangutan takes a nap at the zoo. Hot shots, pictures coming in from around the world.

It's just the latest horror story to emerge from the widespread Superstorm Sandy devastation that is still crippling parts of New York. Rats invading parts of the city. Our Mary Snow went along with exterminators to find them.

(BEGIN VIDEOTAPE)

MARY SNOW, CNN CORRESPONDENT (voice-over): Night descends on New York City and things can get pretty creepy. And after Superstorm Sandy, even creepier.

Terry Riggio says the rat problem in her hard-hit Lower Manhattan neighborhood exploded.

THERESA RIGGIO, NEW YORK RESIDENT: It's crazy. You come home from work, you see a rat. It could be daylight, you see a rat. You walk your dogs past nighttime, you see rats frolicking like they're playing, like they're pets having fun. It's disgusting.

SNOW: When Sandy flooded subways and tunnels, the theory is rats were literally flushed out, forced to relocate and they're staying put. Traps to try and catch them dot streets in Lower Manhattan where construction has only compounded the problem.

Timothy Wong says his pest control company is constantly trying to stock up on supplies.

TIMOTHY WONG, M&M PEST CONTROL: We even have, believe it or not, for these really nice, fancy areas in Manhattan, where they can't use really ugly base stations, they have like rock base stations where, you know, it looks like a rock and you can't tell, but inside, there's actually a hole where the rats can go in, where you can actually put poison in there.

SNOW: Wong says his company M&M Pest Control has gotten more than twice as many complaints about rats and mice compared to a year ago at this time.

That's not what the Health Department says it's seeing. Saying that while large storms can flush out rats, they can also drown them.

JEFF WOODS M&M PEST CONTROL: I'm going to throw some poison up in the ceiling.

SNOW: Growing numbers or not, M&M exterminator Jeff Woods says he sees New York in a whole different light.

WOODS: So it is three years of doing it, you kind of get -- you're always looking over your shoulder.

WONG: It's been keeping us busy. People's nightmare is really, you know, a good day for us.

(END VIDEOTAPE)

BLITZER: Mary Snow reporting for us.

Remember, you can always follow what is going on in THE SITUATION ROOM on Twitter. You can tweet me @WolfBlitzer and tweet the show @CNNSitRoom, and like us on Facebook. Thanks very much for watching.

I'm Wolf Blitzer in Washington. The news continues next on CNN.