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Federal Charges: China Spied On U.S. Computers; First U.S. Case Of MERS By Casual Contact; GM Issues Naughty Word List To Employees; Attorney General Speaks On China Hacking Charges

Aired May 19, 2014 - 10:00   ET

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

CAROL COSTELLO, CNN ANCHOR: We begin actually with two separate stories on computer hacking. A sobering reminder that any of us can be a victim at any time. Take for example the case of Cassidy Wolf, Ms. Teen USA. A hacker took control of her computer and snapped photos of her in the nude in the privacy of her own bedroom. More than 100 people are now under arrest for allegedly using that same malware to hijack personal computers without the person's knowledge around the world. We'll have more on the FBI's global crackdown on that in just a minute.

But first, Attorney General Eric Holder is about to hold a news conference and he's expected to announce a milestone in cyberspying. The U.S. files its first ever charges against officials in Chinese government for hacking into American companies. Five military officers in China are accused of hacking into those companies to steal trade secrets.

The targets included American trade unions and steel companies. The U.S. believes China's cyberspying is both widespread and worrisome. CNN's Jim Sciutto dealt exclusively with this issue during his years in Beijing. He was chief of staff to the U.S. ambassador there at that time. So tell us more about this cyberhacking -- Jim.

JIM SCIUTTO, CNN CHIEF NATIONAL SECURITY CORRESPONDENT: Carol, this is a huge deal. First thing to start with, it's a major problem for American companies. Estimated that they lose $100 billion a year from hacking, stolen trade secrets, et cetera, that cost half a million jobs a year. This is a real problem. It's not a small one.

The second thing is that it's not misbehavior by Chinese companies. It's a view of the U.S. government that this is Chinese government policy. This happens with the express approval and direction of the most senior leaders in China and what you have here today is proof in effect so say American prosecutors that that's the case. They're going after five members of the People's Liberation Army in this building in Shanghai secretive building exposed last year where investigators have traced a good portion of these cyberattacks.

In effect from the view of the Department of Justice, this is the smoking gun they hoped to get out there to say this goes right to the Chinese government, right to the highest levels of government and it reaches average Americans in lost money for U.S. businesses and lost jobs.

COSTELLO: But the people the U.S. government is charging are in China so, I mean, how can they really punish them?

SCIUTTO: Well, that's a good question. This is less about putting these guys in jail and showing evidence that this goes right to the Beijing government and in effect publicly calling the Chinese government out for this. The first time the president did this was last year. He met with the Chinese president in the sunny lands summit, they met there. Not official visit. Relaxed.

This is when the U.S. government was going to hit China hard on this hacking and call them out for it. Bad timing because the very same week, Edward Snowden, releases his revelations about NSA spying and that undermine the U.S. argument. U.S. government officials will say the NSA does this for national security and not for corporate secrets and there's evidence of that.

But of course the timing undermine the U.S. arguments. A year later you have another hit back from the USA saying we know you're doing this. We'll go public with it. We won't let this happen to U.S. businesses. That's really the intention. We'll see if it makes a difference.

COSTELLO: Stay right there. Eric Holder has not yet began speaking, when he begins speaking, of course, we'll take those comments for our viewers live and I want you on the other side to help us understand. Thanks so much.

Another major hacking case you saw here first here on CNN, the FBI swooped in and arrested more than 100 people in a worldwide sting. They're accused of hijacking victims' home computers and then using those home computers to snap pictures of them. You may remember the story of Cassidy Wolf, Ms. Teen USA. A hacker got control of her webcam in her bedroom and snapped nude photos of her. She had absolutely no idea and then these hackers threatened to put these photos online.

(BEGIN VIDEO CLIP)

CASSIDY WOLF, MISS TEEN USA: I don't know how I was hacked exactly. A malware was attached on my computer and was tracing what I was doing on my computer and watching my every move through a my webcam and of course, this is obviously going to change the way I use my computer for the rest of my life.

(END VIDEO CLIP)

COSTELLO: Everybody else too, right. CNN Justice Reporter, Evan Perez, is following this developing story. Who's responsible for this?

EVAN PEREZ, CNN JUSTICE REPORTER: The FBI and police in 17 countries say that there's basically a cybercrime ring that's been responsible for this software called black shades. A software that was used to hack into Cassidy Wolf's computer and they've been working on this case for a couple years. As you said, they've done over 100 arrests and they've done hundreds of interviews and searches in the last few days in Europe, in Canada, and in the U.S. And we expect to hear more about this later this morning.

COSTELLO: Where did they get this device that they can install on person's home computer? Is it easy to get?

PEREZ: Well, yes. It's really easy to get. You can go on a web site and download it and buy it for 40 or 50 bucks. This has been a huge problem. It's a booming business because basically it's off the shelf software like the software you buy to do your taxes. Same thing. You basically just have employees who can help you figure it out if you have any problems.

We're told by law enforcement this is really easy to use and not very sophisticated and once it is in your computer, it can keep track of passwords and get passwords for your bank accounts and used for everything from bank fraud to extortion -- Carol.

COSTELLO: So hopefully they'll figure out a way to remove it from the internet so people can't buy it any longer. That would be a good thing, right?

PEREZ: Yes. Absolutely.

COSTELLO: Evan Perez, thanks so much. I know you'll have more information for us later.

There's a scary new development as a deadly respiratory virus sickens another person in the United States already worldwide close to 600 cases of MERS have been reported. This virus which comes from the common cold family has killed already 171 people. Now for the first time in the United States, a man got Middle Eastern Respiratory Syndrome from casual contact here in this country. He did not travel to the Middle East.

An Illinois man tested positive following s couple of business meetings with a man from Indiana. That Indiana man got sick just days later. Dr. William Schaffner is past president of the National Foundation For Infectious Diseases and joins us for more insight this morning. Good morning, Doctor.

DR. WILLIAM SCHAFFNER, PAST PRESIDENT, NATIONAL FOUNDATION FOR INFECTIOUS DISEASES: Hello, Carol. Good morning.

COSTELLO: Glad to have you back. I know you said we should not be freaked out by this, but this latest case involved a handshake and one man shook hands with someone who had MERS and contracted this disease. That's scary.

SCHAFFNER: I hope it's not too scary because sustained so-called casual or community transmission is not a feature of this virus yet. Yes, there was a handshake, but there were also two 45-minute meetings in which this person was within six feet of the other person. It probably was respiratory spread. The MERS patient breathed out the virus and the other person breathed it in. This is still not happening commonly either in the Middle East or here and so far public health is tracking this very, very carefully. It's contained. It's not spreading like influenza. COSTELLO: Well, the other curious thing is one man got really sick and the other man, he just felt mildly uncomfortable. So why do some people get full-blown MERS and others suffer mild symptoms?

SCHAFFNER: Infectious diseases have done that. Perhaps the milder person got a lower dose. Also, perhaps the more sick person had underlying illnesses, diabetes, underlying heart disease or lung disease. Certainly in the Middle East, people with those underlying illnesses and if you are older, those are the people who get the more severe illnesses.

COSTELLO: OK, so here's the thing I find most scary. Sometimes the symptoms are so mild many people don't even know they have MERS. That's problematic, isn't it?

SCHAFFNER: It is problematic in that sense, but we don't see that happening very frequently yet. That's why the studies are being done. So we all need to stay tuned as the CDC does its good work and let us know what the issues are. So far, it is not spreading widely or wildly.

COSTELLO: OK, I feel better now. You have a great bedside manner, Dr. William Schaffner. Thank you very much.

SCHAFFNER: Glad to help, Carol.

COSTELLO: Thank you. Still to come in the NEWSROOM, what do the words death trap, Titanic and apocalyptic have in common? Why the auto giant is sending out strange new guidance.

(COMMERCIAL BREAK)

COSTELLO: Checking top stories for you at 12 minutes past, this morning, the firefighters in San Diego may finally be getting the upper hand on a rash of deadly wildfires that swallowed up dozens of homes and businesses. Some 26,000 acres have burned. And in the wake of all their hard work, a picture of an exhausted firefighter is taking a much needed break has now gone viral.

Tim Bergun took this selfie in San Marcos, California, this weekend to let his wife know he was OK when one of his friends posted it on Facebook it had thousands of likes in just a few hours.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: It touched us so we just passed it on. They were just really grateful, the word that everybody is thinking is thank you, thank you, thank you. You can't really say thank you enough.

(END VIDEO CLIP)

COSTELLO: That is a true story. The firefighters have been battling the Cocos (ph) wildfire since last Wednesday. It's now about 85 percent contained. South Korea's president is dismantling the nation's Coast Guard in wake of the ferry disaster. Park took the ultimately responsibility for the pain and suffering, but slammed the coast guard for its role in the disaster saying it failed to carry out its duty in the rescue operations.

It may be where dreams come true, but only if you have the cash. California's Disneyland, a.k.a. the happiest place on earth, raised ticket prices. 10 years old and up, $96 for a one day pass up from 92 bucks. Parking also climbed a buck to $17. The price of a ticket four years ago, $72. And when the theme park opened in the summer of 1955, make a guess. It cost -- it's on the screen. It cost a buck to get in. Amazing.

We all know GM has problems. The federal government just slapped a record $35 million fine on the auto maker for delays in reporting flaws in ignition switches. This morning more bad PR for the company. We uncovered a naughty word list distributed to GM employees. Among words discouraged in an internal memo, death trap, widow maker and phrases like this is a lawsuit waiting to happen and unbelievable engineering screw ups. Use phrases like windshield wipers did not work properly.

Let's talk about with Christine Romans is CNN chief business correspondent and we're expecting national automotive correspondent, Lauren Fix, but we are having problems with her satellite. So hopefully she'll pop up. Christine, but I'll start with you. Seriously?

CHRISTINE ROMANS, CNN CHIEF BUSINESS CORRESPONDENT: Seriously. This is from 2008. This predates those problems that have gotten GM in so much trouble this year resulting in millions of recalls. National transportation officials have said, GM, come on. They looked at this set of memos and said this is not cool. The point here that GM was trying to make is they wanted employees not to be judgmental when writing about a potential problem with vehicles and state clearly what the problem was so they could fix it and not say things like Hindenburg.

A new era and new GM and this kind of language is not tolerated and position not tolerated and employees are encouraged to discuss safety issues. That's what GM says now. National transportation officials saying this memo from 2008 shows GM had a culture of not allowing a free discussion with their cars.

COSTELLO: I was just going to bring up because when you prohibit employees from using certain language, it's really hard to communicate exactly what you want at times.

ROMANS: But at the time what those GM lawyers were saying is if you say powder keg, that's not saying what the problem is. That's not saying a brake issue. That's a judgmental kind of thing. GM employees are encouraged to drive GM cars when they are in the process of being developed and when they will be marketed. You have a lot of GM employees driving cars. This is a company in a presentation trying to tell them how to describe your relationship with the car. It comes off very, very badly. Comes off very badly.

COSTELLO: If I filed a civil lawsuit, I would use that, 13 people died because GM ignored these problems with ignition switches. How much money will GM have to dole out in the end?

ROMANS: So we know 35 million is this fine they agreed to last week. It won't end there. There will be other fines no question. And remember there was a criminal fine for Toyota and its recall problem was $1.2 billion. That was a big criminal fine that came through. The problems for GM happened before it filed for bankruptcy.

It emerged from bankruptcy as a new company. All of the parts of GM that can be sued are pre-bankruptcy. That's a problem here. They have hired the one who did the BP oil settlement and that. They may decide to pay out compensation on their own. It would probably be the best PR move rather than shield itself by this bankruptcy filing and say we don't own it.

COSTELLO: Yes, Mr. Feinberg is good at his job. I know that. Christine Romans, thank you so much and we are sorry, Ms. Lauren Fix, next time.

Still to come in the NEWSROOM, amid a scandal for the nation's VA hospital, a new headache for the White House with the 2007 campaign pledge made by then Senator Obama. We'll talk next.

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COSTELLO: All right, right to Washington and the Justice Department where Eric Holder is talking about U.S. officials filing charges against Chinese military members for hacking into U.S. companies' computers and stealing it trade jets. Let's listen.

ERIC HOLDER, ATTORNEY: -- United States steel, United Steel Workers Union and Solar World. This is a case alleging economic espionage by members of the Chinese military. The range of trade secrets and other sensitive business information stolen in this case is significant and demands an aggressive response. The indictment alleges that these officers maintained unauthorized access to victim computers to steal information from these entities that would be useful to their competitors in China including state owned enterprises.

In some cases, they stole trade secrets that would have been particularly beneficial to Chinese companies at the time that they were stolen. In others, they stole sensitive internal communications that would provide a competitor or adversary in litigation with insight into the strategy and vulnerabilities of the American entity.

In some, the alleged hacking appears to have been conducted for no other reason than to advantage state owned companies and other interests in China at the expense of business here is in the United States. This is a tactic that the United States government denounces. As President Obama said on numerous occasions, we do not collect intelligence to provide a competitive advantage to United States companies or to the United States commercial sector. Our economic security and our ability to compete fairly in the global marketplace are directly linked to our national security. The success of American companies since our nation's founding has been the result of hard work and of fair play by our citizens. This is how it ought to be across the globe. Success in the international marketplace should be based solely on a company's ability to innovate and compete. Not on a sponsor's government's ability to spy and steal business secrets.

COSTELLO: Let's jump away from this press conference and check in with Jim Sciutto to parse this out outside. The United States is filing charges against these Chinese military men for stealing trade secrets, but what can they really do besides file charges?

SCIUTTO: Good question. One, publicly shaming does make a difference. The Chinese government doesn't like it and responds to it when it is out there particularly in such detail. You have five individuals. They are with the Peoples Liberation Army and senior officers in china's army and you have the specific six companies. When you look at the companies that he named. Let me just draw your attention to one.

Westinghouse. This company does a lot of business in China with nuclear power plants aggressively selling one of the more advanced designs there and that's one of the things hackers were going after. It shows you sensitivity of the technology that these companies steal that have business applications and it will disadvantage U.S. companies doing business in China and elsewhere but has security implications.

A nuclear power plant. We know from past experience that hackers in China don't just go after things that are of use in business and trade, they also go after national security secrets. And this has really been a big priority for the Obama administration to get this out there.

As I said when we spoke earlier, Carol, when they first tried to do this a year ago when President Obama met the Chinese president in California last spring, their argument was undermine because Edward Snowden revealed about NSA hacking and that made it difficult to make this point. Now they're coming back hard here.

COSTELLO: Have companies made any moves to prevent China from cyberspying?

SCIUTTO: They have. Investing a lot in anti-cyber technology. The guys are good. They have blessing in effect of the Chinese government. One problem that has happened with this is that in the past U.S. companies even as Chinese hackers have been stealing from them have been reluctant to publicize it and to go public with it.

One, they don't want it known that some of their most valuable technologies have been stolen and if they go public they'll be blocked from the Chinese market. This kind of thing happens there. It's not an open market. Companies are very sensitive to that. Some of them frankly write it off. It's a risk of doing business in China. They also try to protect themselves in many cases, Carol, by not bringing their best game to China. They won't bring their most advanced technology.

They might bring their technology. The trouble is these hackers come all of the way to the U.S. They are accessing computers here of many of these companies so you can't protect it. A case a couple years ago where Chinese hackers accessed the servers of the U.S. Chamber of Commerce. That represents hundreds of companies and gets sensitive information. It's a real problem. Cost a lot of money. You see the administration trying to make a difference.

COSTELLO: Jim Sciutto reporting live for us this morning. Thank you.

The retired Veterans Affairs doctor turned whistle-blower sticking by his claims that 40 people died while waiting months for care. Despite an internal review of the department that cast doubt on that number. As the controversy swirls around the White House and its handling of the problem, we're reminded of this 2007 campaign pledge from then Senator Obama.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES OF AMERICA: When we fail to keep faith with our veterans, the bond between our nation and our nation's heroes becomes frayed. When a veteran is denied care, we're all dishonored.

(END VIDEO CLIP)

COSTELLO: CNN senior investigative correspondent, Drew Griffin, broke this story, has been tracking this story and joins us live now for more. Mr. Obama pledged that his administration would be different but look at what happened.

DREW GRIFFIN, CNN SENIOR INVESTIGATIVE CORRESPONDENT: It's very interesting to see how this is getting all of the attention. We've been reporting this for six months. I want to point out the VA's inspector general reports have been out for years now detailing this problem with wait lists and denied care, which is why then Senator Obama made that pledge to the VFW back in 2007 that he would end these delays for care.

And Deborah Draper, newest reporting is that VA's own wait list data is unreliable. That's not new either. The government accountability office and the person in charge of that, Deborah Draper, has been reporting on these problems with the reliability of the data for a decade at the VA, which makes this sound we heard over the weekend about the president being mad just seem rather hallow. Look at what his chief of staff said on Sunday.

(BEGIN VIDEO CLIP)

DENIS MCDONOUGH, WHITE HOUSE CHIEF OF STAFF: The president is madder than hell and I've got the scars to prove it given briefings I have given the president and the conversations that he and Rick and I have had on these matters. At the same time we look at accountability, we want to provide our veterans the services they have earned.

(END VIDEO CLIP)

GRIFFIN: If the president is truly mad as hell, he should be mad at himself and his staff for not only ignoring our reporting, but the government's own reporting that shows this was a problem and in fact ignoring his own campaign promise of seven years ago.

COSTELLO: Drew Griffin reporting live from Washington. Thanks so much.

Still to come in the NEWSROOM, Jill Abramson speaking out publicly for the first time since getting fired from "The New York Times." She had some things to say at commencement speech this morning. CNN's Alexandra Field is following the story. Good morning.

ALEXANDRA FIELD, CNN CORRESPONDENT: Good morning, Carol, a couple of personal anecdotes from Abramson and also she a little bit about her plans for what could be next.