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THE SITUATION ROOM

Mass Hacker Arrest; NBA Takes Legal Action Against Donald Sterling

Aired May 19, 2014 - 18:00   ET

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


WOLF BLITZER, CNN HOST: Another major crackdown on hackers targets -- targeting spyware used to secretly take nude photos of Miss Teen USA. Could you and your computer be exposed right now?

And the NBA takes its first legal step to force Donald Sterling to sell the L.A. Clippers, despite his threat to fight his punishment for making racist remarks.

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

We're following dramatic new moves by the United States government against very dangerous threats to national security and Americans' privacy rights right now. We have new details on two major crackdowns on hackers, one taking direct aim at cyber-criminals who can effectively hijack your computer and use it to spy on you anywhere, even in your bedroom, the other, a first-of-its-kind indictment against top Chinese officials accused of stealing secrets from American companies.

Our reporters and our analysts, they are covering all the new developments, what it means for America's cyber-security.

But, first, our justice correspondent, Pamela Brown, she's got the very latest -- Pamela.

PAMELA BROWN, CNN JUSTICE CORRESPONDENT: Well, Wolf, this is the first time the U.S. has ever done this, filing criminal charges against employees of a foreign government, in this case, five men who allegedly worked for a secret union of the Chinese army.

The Department of Justice says while Americans were hard at work designing new technologies, the five Chinese suspects were stealing their work to give Chinese companies a leg up.

(BEGIN VIDEOTAPE)

BROWN (voice-over): Wanted by the FBI, five Chinese military officials who've allegedly spent years stealing trade secrets from some of the biggest companies in U.S., like Westinghouse and Alcoa, draining the U.S. economy of billions of dollars and putting Americans out of jobs, according to U.S. officials.

JOHN CARLIN, ASSISTANT U.S. ATTORNEY GENERAL: For the first time, we are exposing the faces and names behind the keyboards in Shanghai used to steal from American businesses.

BROWN: From thousands of miles away, the U.S. tracked the men down to one city, one block, one building on a Chinese army base near Shanghai. According to this indictment, the five men hacked into the computer networks of six U.S. companies in the steel, nuclear power and manufacturing industries, raiding highly sensitive cutting-edge research, pricing and strategy information.

SHAWN HENRY, FORMER EXECUTIVE ASSISTANT FBI DIRECTOR: I think the American public has to be concerned. The American public, U.S. companies have lost billions of dollars, hundreds of billions of dollars, by many estimates. They have lost jobs. The U.S. has become less competitive. And Chinese companies and other nations' companies, as a matter of fact, have gained on the backs of American consumers, American taxpayers, American investors.

BROWN: In one case, U.S. officials allege the hackers stole trade secrets of a nuclear power plant while negotiations were under way between Westinghouse and a Chinese company.

ERIC HOLDER, U.S. ATTORNEY GENERAL: We expect and hope the Chinese government will work with us in connection with this and bring these indicted men to justice.

BROWN: But sources tell CNN the chances of that happening are slim to none. Instead, the charges are meant to fire a warning shot across China's bow.

HENRY: The government is just saying, enough is enough. We have got enough evidence. We're coming forward. We're going to throw the gauntlet down and we're going to tell the Chinese government, you can't cross this red line.

BROWN: U.S. officials say economic espionage is a rampant problem that's been going on for years. President Obama has even confronted Chinese leaders about it.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We're going to have to work very hard to build a system of defenses and protections both in the private sector and in the public sector.

BROWN: Chinese officials now firing back, calling the allegations absurd and fictional and portraying themselves as the real victims of cyber-theft by the U.S. brought to life by the Edward Snowden NSA leaks.

(END VIDEOTAPE)

BROWN: And Chinese officials are taking action, suspending the U.S./China cyber-work team.

Meantime, today U.S. justice officials say that this is the new normal and we can expect similar economic espionage cases in the future -- Wolf.

BLITZER: A huge development today. Pamela Brown, thanks very much. Let's dig a little bit deeper with our chief national security correspondent, Jim Sciutto. He's also working the story for us.

So, how pervasive is this problem? How long has it been going on?

JIM SCIUTTO, CNN CHIEF NATIONAL SECURITY CORRESPONDENT: It's pervasive, it's expensive and it's been going on for years. U.S. companies have known about it. The government has known about it.

And the strategy in the past has been to do this quietly, in private meetings with Chinese officials. They tried that for years. It didn't work. Last year at the summit between president Xi Jinping and President Barack Obama, the Sunnylands resort, you will remember, last spring, there was a lot of buildup to that because finally President Obama was going to go face to face and say, we have had enough of this.

Of course, inconveniently, that was the same time that Edward Snowden released his documents about NSA surveillance and that undermined the argument a bit from the U.S. perspective. So, you have a year later the U.S. doubling down in effect and doing something that really, really gets at the Chinese. It's going to make them angry to see these five generals on a wanted poster.

But, really, I think you have U.S. businesses who have lost billions of dollars and the U.S. government running out of patience here.

BLITZER: You lived and worked at China. You know what's going on over there in Beijing and elsewhere. Two-part question. Will it likely have any real impact, and shouldn't the U.S. brace for reciprocity? I assume the Chinese will accuse the U.S. of the same thing and file some of their own formal charges against high-ranking U.S. officials.

SCIUTTO: Absolutely. And that's a smart point, Wolf, because that's a typical Chinese strategy with things like this. So, yes, you can expect reciprocity.

The big question has been strategy here, because the dispute you have, and this is at the company level and at the government level, if you go public, it's going to make Chinese officials, Chinese governments angry. You know, do you lose more than you gain by going public with these things, with these kinds of charges?

But what they found by experience over these years is by trying to deal with it privately, it hasn't changed the behavior. I mean, the number of companies who have dealt with this over there, Wolf, is incredible. They basically see it as a cost of doing business in China. But it's a real cost. They lose their major technologies.

One of the companies listed today, Westinghouse, we're talking about nuclear power, some of the most sensitive U.S. technology, that is being stolen over there. So that strategy failed, doing it quietly. Now they're trying a more aggressive strategy. It remains to be seen. As you mentioned, the reaction from the Chinese government today was very angry. They canceled a U.S./China cyber-working group. We might be expecting some more pushback. You know, we will see if it -- all we know is that the previous strategy didn't work. We will only know over time whether this strategy, more public, more aggressive, more forceful, whether that makes a difference.

BLITZER: A major move by the U.S. today. Jim Sciutto, thanks very much.

Another cyber-crackdown happening on this day as well, targeting the kind of software that can be used to take control of someone's computer, spy on them in their most private moments. More than half- a-million people have been victimized, including Miss Teen USA.

Our justice reporter, Evan Perez, brought this story first to our viewers here on CNN.

This is a pretty shocking development.

EVAN PEREZ, CNN JUSTICE CORRESPONDENT: Well, Yes, Wolf.

This is the first time that the FBI allowed cameras into their cyber- command room. And we were there watching as they were trying to this takedown. They were working with police in the Netherlands, in Germany, and France. And we were watching as hackers went on these forums to complain and to warn each other about the fact that they were getting door knocks and there were people seizing their computers, you know, all over Europe and Canada and the United States, Wolf.

BLITZER: How did the FBI coordinate all of this?

PEREZ: Well, you know, this was a big deal because, you know, if you go after a group of hackers here, they can warn their friends in other places. And these guys don't respect borders. So, the big deal here was for the FBI to coordinate this with 19 countries.

They say that there are about up to 700,000 computers that might be infected with this virus, with this software. So, it's something that is very widespread all over the world.

BLITZER: How big of a problem is this right now?

PEREZ: Well, this thing costs as little as $40 to install. It's very sophisticated. It's like basically off-the-shelf software.

And so the fact that it's very widespread, it tells you that it's a very -- it's a very big problem, not only here, but around the world.

BLITZER: A huge problem right now. Thanks very much. Appreciate it.

Let's talk a little bit more about this with Kevin Mandia. And he's a security, cyber-security analyst, CEO of Mandiant.

Kevin, thanks very much for joining us.

KEVIN MANDIA, CEO, MANDIANT: Thank you. BLITZER: It sounds awful that for, what, $40, as Evan just reported, you can install this malicious software in there and spy on people in their homes. Can home security systems, video cameras at home, are they vulnerable to this kind of stuff as well?

MANDIA: Well, I think the consumer is vulnerable.

You have got to find a way to catch the malware in action. And right now the safeguards that most people deploy at home can be easily circumvented, so it's great to see law enforcement taking such an active role because right now if we can go from electronic evidence to actually grabbing people that are behind it, that's the strongest deterrent we have got.

BLITZER: So how worried should all of us be that if we have a home security system with video, you know, you can -- you're on vacation some place, you can check to see if your garage door is open, stuff like that.

How concerned should we be that these hackers can go in there and start watching us under these kinds of circumstances?

MANDIA: Well, I think that's how cyberspace has changed.

Over the last few years, we have seen the need for consumers to get smarter about how to secure their home. So they do need to take some safeguards. We're two years removed from most people Facebook blog and blogging, hey, I'm leaving for two weeks or I'm doing something for the next two weeks and telling criminals, hey, I'm leaving my house.

Now criminals are able to find out firsthand. And I think, in general, the average consumer now needs to raise their awareness about security when it comes to cyberspace.

BLITZER: Let's talk about China right now, these formal charges that have been filed by the U.S. government. Right now, your company, Mandiant, you have been reporting about this for a while. But let's be honest. China's not the only country that does this kind of malicious cyber-warfare, if you will, trying to steal trade secrets.

MANDIA: Well, that's true.

But I can tell you they're the most pervasive. They're the ones that are hacking. When you read the indictment, all 60 pages of it, the indictment is about taking intellectual property. So it's the theft of trade secrets. It's economic espionage.

Look, most other governments that I have responded to where there have been breaches, it's about security and about defense, not about economic gain. So there are rules of engagement in cyberspace, and China doesn't seem to follow the same rules.

BLITZER: How unprecedented is it that the U.S. today filed these formal criminal charges against these high-ranking Chinese military officials? MANDIA: Well, I have been doing this for over 20 years and this is the first time I have seen it happen. I would say this is setting precedent right now.

BLITZER: You think it will stop anything or it's just going to keep on going?

MANDIA: Well, Wolf, I can tell you it's the most normal escalation you can do. We have tried everything else. We exposed the Chinese group PLA Unit 61398 over a year ago on the front pages of "The New York Times."

We had presidential meetings where two heads of state discussed this. But, again, it was the same day that the Snowden files leaked, so that may not have had the right teeth to it. So, the next logical escalation is, in fact, this indictment.

BLITZER: Kevin Mandia helping us appreciate what's going on, thanks very much.

Still ahead, there's some breaking news we're following in the Donald Sterling scandal, the NBA now making a new formal move to force him to sell the L.A. Clippers.

And is North Korea strongman Kim Jong-un trying to show a more emotional side?

Stand by -- his surprising response to a -- quote -- "serious accident" in his country.

(COMMERCIAL BREAK)

BLITZER: There's breaking news in the Donald Sterling scandal.

We just got reaction from this estranged wife's lawyer to a new move today, a legal move by the NBA. The league took its first formal legal step to terminate Sterling's ownership of the L.A. Clippers and force a sale.

In a statement, Shelly Sterling's lawyer says he's reviewing the voluminous charges, the lawyer is, but also adds this. "Based on our anymore initial assessment, we continue to believe there's no lawful basis for stripping Shelly Sterling of her 50 percent ownership interest in the Clippers. She is the innocent estranged spouse."

Let's bring in our senior legal analyst, Jeffrey Toobin, and our CNN anchor Don Lemon.

What does this all say as far as Shelly Sterling is concerned, her 50 percent ownership, this legal move today by the NBA, Jeffrey?

JEFFREY TOOBIN, CNN SENIOR LEGAL ANALYST: Well, two things jump out at me about Pierce O'Donnell's statement there.

One is, he refers to the voluminous charges. We have only seen a press release, a brief summary of what the NBA has filed against the Sterlings, so really don't know the full effect of it. The second thing is, it is something less than a threat to sue. The lawyer says -- Pierce O'Donnell, Ms. Sterling's lawyer, says, we think this is wrong, but it is not as much of a saber-rattling statement as he's made in the past.

So she certainly does seem to me, at least, to be someone who's open to a deal that would give her a great deal of money, but not let her own the Clippers anymore.

BLITZER: What do you think, Don? Should she be allowed to keep five 50 percent of the team?

DON LEMON, CNN ANCHOR: I don't think so. And I think that's the public sentiment, that's what the team says, and that's what most people want.

I think that the -- if I were an attorney for the NBA and I received this, I would say, so what, who asked you? We're not suing you, right? We're suing Donald Sterling. Donald Sterling is the principal. So you're Donald Sterling's wife. So, whatever profits, whatever money Donald Sterling gets from the sale of this team, you will get your half.

My response would be like, who cares? You're not involved in this lawsuit.

(CROSSTALK)

TOOBIN: Well, remember, and it's not a lawsuit yet.

LEMON: Right.

TOOBIN: It is simply the NBA working its own processes, and they have said for the last several weeks we're getting rid of the whole Sterling ownership group.

LEMON: Right.

TOOBIN: So it doesn't matter who else Donald Sterling is connected with, as far as we're concerned. We're getting rid of the lot of you.

And, as you say, Don, I think that's right. It's like, who cares what you think?

LEMON: Right.

BLITZER: You know, Don, let me read to some of the direct accusations that the NBA leveled against Sterling today.

They said: "Sterling's actions undermine efforts to promote diversity, damage fan relationship, harm owners, players and the Clippers' team and impair marketing relationships."

Based on that alone, they suggest he should be out. Obviously, if he sells the team, he's still going to walk away with, what, $1 billion or so. I don't know if he's going to take the money and run or if he's going to fight. I think you believe, even though he's 80 years old, he's going to fight.

LEMON: Oh, yes. Of course he's going to fight. And if he doesn't fight, you see Shelly Sterling is going to fight as well.

So, if Donald Sterling doesn't tie this up in court, then Shelly Sterling -- that's probably the wildcard. He may say, OK, fine. And then she will go, wait a minute, I don't want to sell. I'm part of a trust. I own half of this team or whatever percentage I own.

And so she may have some sort of a -- and I don't know if this will work -- some sort of back-end legal claim that she will try to -- so I think -- I think what our legal analysts like Jeffrey and Sunny said early on, that it's going to -- it's going to be a while. It could be years. I think most people hope not. But I think it's going to be a long time before this is actually resolved and actually figured out.

And we're going to have to see how the players react next season, if they feel as if the NBA is working at least in their manner in the way that they would like them to work, or if they're just going to go, you know what, this isn't happening the way we want it to happen and they figure out a way to take some measure of their own.

BLITZER: And you see the NBA is moving quickly. They say Adam Silver, the commissioner of the NBA, Jeffrey, that Sterling has until, what, May 27, a little bit more than a week from now, to go ahead and respond to these charges. They want him out, and they want him out quickly.

TOOBIN: Right. And then the NBA owners will meet June 3.

So, yes, the process is moving forward quickly. And I think, you know, what's key here is that Adam Sterling (sic), you know, has lined up support in advance. There will be at least three-quarters, probably unanimous support for his position.

BLITZER: Adam Silver. Adam Silver.

TOOBIN: The question is, will any...

Yes, I'm sorry. Adam Silver.

Will Sterling, Mr., Mrs., children Sterling, will any of them go to court and try to stop this process? Because it seems to me like this train is leaving the station and he could be out on June 3 unless the court interferes.

(CROSSTALK)

BLITZER: Don, hold on. Hold on, Don, because I know you're going to have a lot more.

LEMON: OK. Sorry about that.

BLITZER: We're going to -- that's a good tease for your program later tonight. You are going to have a lot more on this subject 10:00 p.m. CNN tonight with Don Lemon. We will be watching. Guys, thanks very much.

LEMON: Right. Thanks, Wolf.

BLITZER: Just ahead: the leaders of North Korea's brutal regime now saying, the leader, that is, Kim Jong-un, now saying he's feeling the pain of his countrymen. What is he up to?

Stay with us.

(COMMERCIAL BREAK)

BLITZER: A catastrophe in North Korea prompting a surprising apology from the country's leadership and a claim that the strongman Kim Jong- un lost sleep over what happened.

Our Pentagon correspondent, Barbara Starr, is watching the story for us.

Very unusual for North Korea. Barbara, what happened?

BARBARA STARR, CNN PENTAGON CORRESPONDENT: Well, Wolf, an apartment building collapsed. No word on how many were killed or injured, but what is so extraordinary is that the North Koreans are talking about it at all.

(BEGIN VIDEOTAPE)

STARR (voice-over): An extraordinary deep bow, as a North Korean official apologizes to grief-stricken residents and families of victims of an apartment building collapse in the capital, Pyongyang.

The North Korean state-run news agency reported construction was not done properly and officials supervised and controlled it in an irresponsible manner.

South Korea said the 23-floor building may have had 92 families living inside. North Korea said Kim Jong-un sat up all night feeling painful after being told about the accident.

But a public apology from a government that keeps its citizens isolated?

VICTOR CHA, FORMER NATIONAL SECURITY COUNCIL MEMBER: This happened in the city of Pyongyang. They obviously felt like they could not keep it quiet.

STARR: Could the regime be loosening its control?

CHA: It's a reflection of the fact that even North Korean authorities understand that they cannot keep the same sort of iron grip on their people the way that they did, you know, 20, 30, 40 years ago.

STARR: North Korea going so far as to release this photo Monday of its leader, Kim Jong-un, visiting hospital with his wife. CNN cannot independently verify the authenticity of the image. North Korea has acknowledged disasters before, including floods that killed scores in 2012, and a 2004 railroad explosion that killed hundreds. But this time, the regime took responsibility, analysts say perhaps hoping to draw contrast to what it says is South Korea's avoidance of responsibility for the recent ferry disaster that killed nearly 300 people.

(END VIDEOTAPE)

STARR: Now, don't look for North Korea to change its tune any time soon in favor of more openness. In fact, analysts say the regime, Kim Jong-un is still quite prepared to do away, to kill any of those in opposition to him to preserve himself in power -- Wolf.

BLITZER: It's a very mysterious place, indeed. All right, Barbara Starr reporting for us, thanks very much.

Finally, I want to end the -- our program with this important note. I was simply thrilled to return to my hometown of Buffalo, New York, over the weekend to receive an honorary doctorate from Canisius College in Buffalo.

It's a wonderful Jesuit university that produces excellent, excellent graduates. I delivered the commencement address to the undergraduates. I urged them to keep pursuing their dreams, follow their passions wherever that takes them.

Let me congratulate the class of 2014 once again. I had a great thrill going back to Buffalo and Canisius College.

Remember, you can always follow us on Twitter. Tweet me @WolfBlitzer. Certainly, you can always tweet the show @CNNSITROOM.

Please be sure to join us once again tomorrow right here in THE SITUATION ROOM. You can always watch us live. You can certainly DVR the show so you won't miss a moment.

That's it for me. Thanks very much for watching. I'm Wolf Blitzer in "THE SITUATION ROOM."

Now let's step into the CROSSFIRE with Van Jones and Kevin Madden.