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Paula Zahn Now

New York Stock Exchange Chairman Resigns; Dick Cheney's Halliburton Ties

Aired September 17, 2003 - 20:00   ET

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

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


PAULA ZAHN, CNN ANCHOR: New calls for an investigation into Vice President Dick Cheney's connection with his former company, a company that is getting billions to rebuild Iraq.
The dramatic story of how one girl escaped life as a sex slave and helped police bring down a multistate teen prostitution ring. We'll meet the heroic young woman.

And Oscar winner Michael Caine on his legendary film career and his new starring role. He joins us tonight.

Good evening and welcome. So good of you to join us tonight.

Also tonight, Hurricane Isabel is just hours from lashing North Carolina and Virginia with tropical-storm-force winds. We're going to take you live to the Outer Banks.

We'll also have the news on the resignation of New York Stock Exchange Chairman Richard Grasso. He quit today, under fire for his $140 million pay package.

And our debate tonight: On the 25th anniversary of the Camp David accords, is a fence the only way that Israel and the Palestinians can live together?

And our exclusive series of reports from Korea's demilitarized zone; tonight, a rare trip to the North Korean side.

Now, here are some of the other headlines you need to know right now.

Authorities in Tennessee say an armed man is holding a group of students and a teacher hostage at Dyersburg State Community College. Authorities say the man first took 12 to 16 people hostage, before releasing four of them. A SWAT team and negotiators are on the scene.

And as we've said, Hurricane Isabel ready to strike North Carolina and Virginia by midnight tonight.

For more on that, I'm joined live by Susan Candiotti, who is standing by in Kill Devil Hills, North Carolina.

Good evening, Susan. What is believed to be the storm track tonight?

SUSAN CANDIOTTI, CNN NATIONAL CORRESPONDENT: Well, we expect to start feeling hurricane-force winds, or, at the very least, tropical- force winds by midnight tomorrow. And certainly, by daybreak tomorrow, we ought to be in the thick of it, as the eye is supposed to make landfall at around noon or 1:00 tomorrow afternoon.

So, as the sun goes down, anxiety levels are really on the rise here among authorities who have to stay and residents who have chosen to stay on this part of the Outer Banks. There has been a mandatory evacuation order in effect since noontime yesterday. And authorities say about 75 percent of the population has paid attention to it and has left the barrier island, boarding up a lot of the homes here on their way out.

So, as you drive through town, you barely encounter any traffic. Picture Kill Devil Hills. That's where we're reporting to you from at this hour. It's only five miles long and two miles wide, one of the barrier islands here. And they are expecting a storm surge of anywhere from seven to 11 feet and waves of up to 20 feet on top of that.

And I got new numbers just a little while ago from state emergency officials. They say that, in evacuation shelters statewide, the numbers, again, within the last hour, have gone from about 120 people to at least 400 people or more. So, clearly, Paula, as the storm gets closer, more and more people are getting more worried and are moving out.

ZAHN: And what are you hearing once this storm makes landfall about what major cities may be in its path?

CANDIOTTI: Well, certainly, it appears mostly points south, although we do appear to be, in this area, in the northeast quadrant of the storm, so anywhere from here along the Outer Banks.

They can't say precisely for sure, but here in the Outer Banks and then down to Cape Hatteras, Cape Ocracoke, then and farther south, including Morehead City and New Bern, and the Atlantic Beach area down there, a lot of people, they say most of the people filling up the shelters are from down points farther south of us, Cape Lookout, Cape Fear, even.

But even a bit -- as I said, Morehead City and New Bern are the two cities where people have mostly cleared out from the Outer Banks and those barrier islands inland to get away from the storm.

ZAHN: Well, Susan, keep your moorings when those winds kick up. We need you. Susan Candiotti reporting live for us, thank you.

CANDIOTTI: We will.

ZAHN: And some new questions tonight about a much-discussed, but perhaps little understood company and Vice President Cheney's ties to it. Halliburton is a Houston-based energy service and construction company turned political hot potato and fodder for late-night TV comedians.

(BEGIN VIDEO CLIP, "THE LATE SHOW WITH DAVID LETTERMAN") DAVID LETTERMAN, HOST: How many of you folks saw President Bush on the television last night with his speech about Iraq?

(APPLAUSE)

LETTERMAN: well, he's asking Congress for $80 billion to help rebuild Iraq, $80 billion. And when you make out that check, remember, there are two L's in Halliburton.

(LAUGHTER)

(END VIDEO CLIP)

ZAHN: Halliburton has come under fire from Democrats because of what Republicans insist is a mere coincidence. Halliburton is both the former employer of Vice President Cheney and a big beneficiary of government contracts aimed at rebuilding Iraq.

"In Focus" tonight, We are focused by John Fund, a columnist for the online edition of "The Wall Street Journal." He joins us from Washington tonight.

Always good to see you, John. Welcome.

JOHN FUND, "THE WALL STREET JOURNAL": Thank you.

ZAHN: First of all, do you believe Iraq is a giant payday for Halliburton?

FUND: Well, certainly, they are going to get a lot of work. They do a lot of work in putting out oil fires. They do a lot of work in reconstruction. They're an energy company.

Iraq is the exactly the kind of thing that they tend to want to do. Now, of course, the problem is that at least one or two of these contracts were not let out through competitive bidding. And, as a result, there are some suspicions. But, during time of war, sometimes you can't go out and have competitive bidding. Sometimes, you just got to get the job done.

ZAHN: But isn't there also the other issue that Congressman Waxman has pointed out today that Halliburton has gotten twice as much business as its nearest competitor?

FUND: Well, that may be a legitimate argument.

On the other hand, some would argue that Halliburton is two or three times bigger than any other firm in this operation. So the question becomes, what in the world was the undue influence, if any? So far, there's no evidence of that, because the vice president has his finger in many pies, but apparently government contracting isn't one of them. And there's no indication that he ever had any role in letting out these contracts.

ZAHN: Let's go through some of the numbers with the audience right now. We're going to put up on the screen some of the salary figures that the vice president has enjoyed since the year 2000.

Then you jump ahead, when he had -- came into the vice presidency. And he received about $368,000 in deferred compensation from Halliburton. He continues to claim he has no financial ties to Halliburton. How could he say that?

FUND: Well, he does have income.

He's doing very, very well by Halliburton. But the income is deferred and it's paid regardless of the performance of the company. So, yes, he is benefiting from Halliburton, but he doesn't get more money if Halliburton does better.

ZAHN: Let's go back to this whole issue of no-bid contracts. You've no doubt have heard some of the complaints of smaller contractors, who say they couldn't get arrested when they tried to make contacts at the Defense Department to try to get business. They said they could have done the job of putting out some of these oil fires in Iraq for half the amount that Halliburton charged.

FUND: I think that's a legitimate complaint, but I don't necessarily think it means undue influence for Halliburton.

Let's face it. The government is a big enterprise. It's used to dealing with big enterprises. As we know, when the government tries to have minority contracting or contracting for women, it often doesn't reach down and find smaller firms. That's a separate problem, though, as to whether or not Halliburton was steered this contract through undue influence because of Vice President Cheney. The government is a big organization. It tends to deal with other big organizations.

ZAHN: One final question for you. You made the point that Vice President Cheney, at his level of the government, would have nothing to do with contracts anyway. That had to do with the Army Corps of Engineers.

But just isn't his mere position as vice president one that would make some of the business go to Halliburton because of his contacts with the company and his history there?

FUND: Some people question that. That's why they're calling for an investigation. But there are ways to look at this without turning it into a media circus.

The General Accounting Office does a lot of work in trying to track down government contracts and what happens. That may be a way to go. I'm not saying there isn't some cause for questions here. But so far, I don't see a smoking gun or even a warm barrel.

ZAHN: John Fund of "The Wall Street Journal," thanks so much for your time tonight.

And we're going to move on. Vice President Cheney denies having any financial interest in Halliburton, as we just said, or steering any contracts in Halliburton's direction. (BEGIN VIDEO CLIP, "MEET THE PRESS")

DICK CHENEY, VICE PRESIDENT OF THE UNITED STATES: Since I left Halliburton to become George Bush's vice president, I've severed all my ties with the company, gotten rid of all my financial interests. I have no financial interest in Halliburton of any kind and haven't had now for over three years.

And, as vice president, I have absolutely no influence of, involvement of, knowledge of, in any way, shape or form of contracts let by the Corps of Engineers or anybody else in the federal government.

(END VIDEO CLIP)

ZAHN: Well, many Democrats remain skeptical of that.

Senator Frank Lautenberg of New Jersey joins us from Capitol Hill.

Good evening, sir.

SEN. FRANK LAUTENBERG (D), NEW JERSEY: Good evening.

ZAHN: So what is your core argument here? That the vice president is lying to the American public?

LAUTENBERG: That, we must find out.

But the fact of the matter is, for the vice president to deny on such an important media outlet as Tim Russert's "Meet the Press," to deny that he has any financial interest when, in fact, he's still getting compensation and will for the next three years from Halliburton, and he still has 433,000 shares on option. Though he has pledged to give them away, the fact is, he has an interest and can't deny it. And that's the problem.

ZAHN: But there is nothing in the law that doesn't -- that wouldn't allow for Vice President Cheney to get this deferred compensation.

LAUTENBERG: That's true.

But there is something in ethical behavior when it comes from the White House. And you yourself talked about the fact that Halliburton got a no-bid competitive contract, no competition, that's now somewhere close to $1 billion. It got another contract that was competitively bid that has got $1 billion.

And, listen, if someone is giving out contracts and the name Halliburton comes up, can it ever be denied that there is no association with the vice president? I think it's kind of a sweetheart place to be, I must tell you. And that's the thing that's got us exercised. And a lot of people are concerned about it. If you ask any of the American people whether, when they get a paycheck, $160,000, $200,000, whether that's the financial connection to the company that writes those checks, I would think so.

ZAHN: But are you saying that the vice president isn't entitled to refer -- to get this deferred income? He negotiated that. Or are you saying that he should receive that once he's out of office?

LAUTENBERG: Well, he either should have received it all then and been done with it or defer it now until his last term, whenever that is, is done with. That's what I think.

The vice president, sitting in the White House, speaking for the whole of the American people, says, oh, I have no financial interest, but yet there is a financial interest. We're not talking about the amounts. We're not talking about the form. What we're talking about is, when he says he has no financial interest, it is either a misstatement, an accident, or it's deliberate. But the fact is, it's a misstatement.

ZAHN: Senator Frank Lautenberg, thanks so much for your time.

LAUTENBERG: OK.

ZAHN: Appreciate it.

Could this come back to haunt the White House politically next year?

Joining us now, former Pentagon spokeswoman Victoria Clarke in Washington and "TIME" columnist Joe Klein, who joins us here in our New York studios tonight.

Good evening to both of you. Welcome.

(CROSSTALK)

ZAHN: Torie, I'd love to start with you this evening.

VICTORIA CLARKE, FORMER PENTAGON SPOKESPERSON: Sure.

ZAHN: Do you acknowledge that the appearance of Halliburton getting this huge no-bid contract raises some pretty potent questions?

CLARKE: Well, if you actually look at the facts, there are very few companies around the world that are the size and scope to handle some of those tasks in the rebuilding of Iraq.

Most of the bids have been competed. There have been some circumstances, as John Fund said, where they haven't, but it's been done in a very up-front, transparent kind of fashion, as has been Vice President Cheney's behavior on this. It is a matter of public record what he has done. And in this case, Senator Lautenberg, with all respect -- he's a former businessman -- he knows these things -- is doing what countless people have done. Now, this is compensation he earned years ago and he's getting it in these years.

I'm just struck by the fact that people like Senator Lautenberg know better. The American people are not exercised about this. They get up every day and they're thinking about things like, how are we going to rebuild Iraq and move forward there? They're thinking about things like the economy here in the United States. They are not exercised about this.

And I think some people, with all due respect, are just trying to stir up a storm where there isn't one.

ZAHN: Are you exercised by this, Joe Klein?

JOE KLEIN, "TIME": Well, I think that this is really serious business and we have to be very precise about it.

Torie, who I see is just wearing just one color today, rather than her usual multicolored outfit

(CROSSTALK)

ZAHN: She's toned it down for you, Joe.

CLARKE: Right.

First of all, I'm pretty sure that the vice president didn't call Don Rumsfeld and say, you got to give this contract to Halliburton.

CLARKE: I can promise you that.

(CROSSTALK)

ZAHN: Well, the vice president has said that.

KLEIN: Second of all, Kellogg, Brown & Root, the subsidiary of Halliburton that does a lot of this reconstruction work, has a long and very solid track record of doing this work well.

And in some of the contracts, like taking care of the oil fields, you had to let it very quickly. Having said that, you have an administration here that is just laced with oil company executives. And it is making policy in Iraq and making policy in Saudi Arabia and throughout the Middle East. And, therefore, it has to be cleaner than clean.

(CROSSTALK)

ZAHN: When you say making policy, you're talking just by virtue of these contracts or these

(CROSSTALK)

KLEIN: I'm talking about going to war in Iraq and not holding Saudi Arabia to account for its longtime relationship with al Qaeda, and the fact that 15 of the 19 hijackers were from Saudi Arabia, and the fact that the Bush family and the Halliburton company has a longstanding relationship with the ruling family in Saudi Arabia.

So, given those facts, it's really important for the vice president, the Defense Department and others to be very clean about this. The vice president shouldn't be taking money. Torie's old associate, Assistant Secretary Doug Feith, shouldn't have his law rounding up, rustling up clients who want to do business in Iraq.

And, also, the vice president should have had a far more open energy policy process, which he closed to the public.

(CROSSTALK)

ZAHN: Torie, jump in here.

CLARKE: Well, he's just piling insinuation on top of allegation and doing 14 different issues.

The facts are these. Everybody in this country who thinks about it wants Iraq rebuilt as quickly as possible. The oil policy that he speaks of is to maintain and preserve and get the oil flowing and get that resource going for the Iraqi people. That's the beginning and the end of it. The facts are that there are only a few companies that can do the kind of work that needs to be done.

And the facts are also that it has been a very, very transparent and open process, more so than most of the predecessors, in terms of public disclosure.

ZAHN: Has it been transparent, Joe?

KLEIN: In this particular case, she's right.

I think that what the Democrats should be investigating is not just these contracts, but the whole policy-making process that led to the energy policy that this country has, and, also, on the most important level, why we went to war in Iraq and why we went so easy on Saudi Arabia.

(CROSSTALK)

ZAHN: Torie, you get the last word. And I only give you about 10 seconds.

CLARKE: Sure.

Once again, on the 14 different topics.

KLEIN: Only one topic, Torie, oil.

CLARKE: But what would be a good use of Congress' time is finding a way to make it easier and more constructive for a lot of different companies to work with the government, because as John Fund said, it's very different working with a big bureaucracy like the U.S. government.

ZAHN: And there's also the story of these smaller contractors that said they tried to make contact with the Pentagon and couldn't get their phone calls

(CROSSTALK) KLEIN: There's a way to do what Torie said. And I agree with her completely about getting this job done as quickly as possible. The way to do it is to internationalize this, which the Pentagon has been fighting every step of the way. And it's been a disastrous policy.

ZAHN: We've got to leave it there this evening.

Joe Klein, Victoria Clarke, thank you for both of your perspectives this evening.

CLARKE: Thank you.

ZAHN: And the top man at the New York Stock Exchange has resigned. Coming up, we're going to look at the $140 million pay package that led to his demise. That's in tonight's edition of "Plain English," if I can speak in plain English, that is.

And a little bit later on, I'll be speaking with a film legend. Michael Caine joins us to talk about his new movie, as well as his career and life in pictures.

Please stay with us.

(COMMERCIAL BREAK)

ZAHN: Welcome back.

Time NOW for our "Plain English" segment, a closer look at Richard Grasso's decision today to resign his powerful post as head of the New York Stock Exchange. Grasso been under increasing fire for his lavish pay, benefit and retirement package.

Chris Huntington has been following the story, joins us now.

Welcome.

CHRIS HUNTINGTON, CNN CORRESPONDENT: Paula, welcome. Hi. How are you?

ZAHN: It's a pretty exciting one to follow. It happened at the last minute, just about an hour and a half, I guess, before we went on the air, Dick Grasso saying, I'm not going anywhere. And then he resigned.

(CROSSTALK)

HUNTINGTON: Well, there's been a brave face from the exchange and from the board of directors for several weeks now. Of course, there's been huge mounting pressure.

Late this afternoon, apparently Grasso called an emergency conference call of all the directors, walked in and said, I'll resign if you guys ask me. So he left the room or left the call. The directors spent just a couple of minutes, worded a question to him, and he accepted. So... ZAHN: And no one should have been surprised by that.

HUNTINGTON: Nobody was surprised. This has been coming.

And, of course, with the big development yesterday of the major pension funds, the biggest funds in America, the California retirement funds for state employees there, and the New York pension fund, saying he has got to go, that's huge leverage on Wall Street.

ZAHN: Let's look at that $140 million pay package. So his base salary is 1.4. You look at this graphic up on the screen. You look at the total compensation.

(CROSSTALK)

ZAHN: Now, there's nothing illegal about this compensation package.

HUNTINGTON: Nothing. There's nothing illegal. And that's a very important point, Paula, is that there's nobody who is alleging any kind of illegality on Dick Grasso's part, or even impropriety. In fact, he's being called a superb manager. The head of the SEC today praised him as a superb manager.

(CROSSTALK)

ZAHN: Poor judgment in accepting it?

HUNTINGTON: Poor judgment. Poor judgment.

For Dick Grasso, there was a magic number in compensation that he could have accepted somewhere probably south of $100 million, that, if he accepted it, the story we'd all be telling is, Dick Grasso worked his way up, rang the exchange brilliantly, retired a rich man, great story.

ZAHN: So what was it about the additional $40 million? Help me with this one, please.

HUNTINGTON: Well, Paula, it's -- the $140 million package was a bunch of very complicated benefit and retirement programs that, when all bundled together, including some that were earning interests automatically at 8 percent, and other premium bonuses piling on top of each other that most directors never had a chance to see on a single page at a single time.

When you put all those numbers together and you put out a figure of $139.5 million, with another 48 that he declined, that number is just overwhelming.

ZAHN: Sure.

HUNTINGTON: And people just simply -- you know the stock market. Perception and pack mentality rule. And when the perception was garnered that Dick Grasso is another greedy CEO, that overwhelmed the exchange. (CROSSTALK)

ZAHN: And that was the perception on the part of a lot of American investors, particularly small investors.

HUNTINGTON: Absolutely.

ZAHN: They thought this was absolutely outrageous.

HUNTINGTON: Sure.

Who knows? The California state treasurer yesterday threw up some math, saying that it would take the average worker something like 5,200 years to make $140 million. It's a number that is incomprehensible to most Americans and to most investors, even, who, frankly, had been losing money for two years.

So, in the last couple of years, while the exchange has not exactly -- or while the markets have not exactly been performing well, Grasso makes off with a huge package. It just was bad timing, bad judgment. And he's paying the ultimate price.

ZAHN: Chris Huntington, thank you for explaining that all to us this evening. Appreciate it.

(CROSSTALK)

ZAHN: Coming up: It is the most heavily guarded border in the world, so how can anyone cross the Korean DMZ? Well, Martin Savidge will show us how in an exclusive report.

And then a little bit later on: how a teenager brought down a multistate sex ring. My conversation with her when we come back.

(COMMERCIAL BREAK)

ZAHN: All this week, Martin Savidge is bringing us an exclusive series of reports from the most heavily guarded border in the world, Korea's demilitarized zone.

Today, he shows us how to get across that dangerous divide.

(BEGIN VIDEOTAPE)

MARTIN SAVIDGE, CNN CORRESPONDENT (voice-over): Crossing the military border dividing North and South Korea is rarely advisable, mainly because you could get shot. But on Conference Row at Panmunjom, over three days, we watched three ways it can be done.

First, you could be dead, as was the case of a North Korean swept down a rain-swollen river, his body ending up in the south. The pallbearers never crossed the line. Instead, only the casket makes the journey, passing form southern into northern hands. The second way is to be a tourist. Building T-2 is used as a neutral meeting place between North Korea, South Korea, and the United States. The border runs right through the middle of it. UNIDENTIFIED FEMALE: Over there is North Korea. Right now, I'm here, is South Korea side.

SAVIDGE: With just a few steps, visitors can rightfully earn the boast they were in the north.

North Korea has its own tours. And both sides share the same room, just never at the same time. To make sure there is no conflict, South Korean guards first inspect the room before their tours go in. The North Korean entry door must be locked from the inside. One guard braces himself against a wall while hanging on to the second, who throws the lock. This is done to prevent North Korean guards from trying to grab a South Korean guard.

Now, if you think that was interesting, wait until you see what happens next. The third and most unusual way to cross the border, the repair job. Last year, to improve communications between the two, North Korea was given a fax machine, prior to that, the only way they could talk was over this old Russian field phone. But every now and then, the fax machine needs to be serviced. And that's what has U.S. soldiers doing the unthinkable, stepping over the line into North Korea.

If not for the seriousness of the situation, it might sound like a joke. How many men does it take to fix a North Korean fax machine? Five. One to repair it, another to translate, and three to guard. Several minutes later, the fax is fixed and the Americans step back.

In the DMZ, life is sort of a new twist of an old saying: When it comes to crossing the line, the only thing certain are death and faxes.

(END VIDEOTAPE)

SAVIDGE: And, Paula, we brought you back live inside of building T-2 here at Panmunjom. That's the room that you saw all the tourists that were standing in.

It's interesting to point out, tourism is huge in the DMZ, the last place you would probably expect to find any tourists. From South Korea alone, 150,000 tourists make their way up here. And the North Koreans, as you saw, have their own tours. This is the neutral meeting site for the North Koreans and the United Nations command.

We should point out one humorous story. There are lots of them in their face-off here. There was a meeting that took place between the two sides a number of years ago. The North Koreans actually came into the room early and sawed down the legs of the chairs of the American delegation. When the Americans came in and sat down, they looked like kids at the kitchen table, puny -- just some of the shenanigans that takes place at the DMZ -- Paula.

ZAHN: Martin Savidge, thanks so much for that exclusive look.

And I wanted to remind all of you out there with this programming note that Martin will be back tomorrow with another look at life along Korea's very dangerous divide.

There's a new reality in the Middle East, a reality designed to separate Israelis and Palestinians. Coming up, we're going to debate whether it is the only way to peace.

And later: a horrible story out of the Michigan, where the alleged organizer of a multistate sex ring is facing decades in prison. We'll talk with a victim of that ring.

(COMMERCIAL BREAK)

ZAHN: If you're just joining us, here are some of the headlines at this hour. You need to know, clouds from the outer edge of Hurricane Isabel, already cover the U.S. East Coast. In a few hours tropical storm force winds will be blowing over North Carolina's, Outer Banks. The eye of the storm is expected to come ashore tomorrow. Richmond, Virginia and Washington may get hurricane-force winds.

And a man identified as Harold Kilpatrick, Jr., continues to hold some 12 to 16 people hostage in a community college classroom in Dyersburg, Tennessee. Police say Kilpatrick claims to be a member of al Qaeda.

President Bush says the U.S. has no evidence that Saddam Hussein was involved in the 9/11/2001 terrorist attacks. A new audiotape, supposedly from the former Iraqi leader angrily accuses the president of lying about the reason to invade Iraq.

Today is the 25th anniversary of the Camp David accord. Egypt made peace with Israel in return for giving back Egyptian territory occupied in war. Well, 25 years later, the pattern of trading land for peace is being replaced by a new reality, a wall made of concrete and barbed wire. Wolf Blitzer has seen it all and offers this perspective.

(BEGIN VIDEOTAPE)

WOLF BLITZER, CNN ANCHOR (voice-over): After 13 days of intense negotiations, then President Jimmy Carter managed to bring Egyptian President Anwar Sadat and Israeli Prime Minister Menachem Begin together for peace.

I remember that previous September. Sadat had broken ranks with the Arab world and his dramatic visit to Jerusalem to embark on the path towards peace. I covered the first Israeli-Egyptian peace talks that followed. Former U.N. Secretary-General Butros Butros Ghali was Egypt's foreign minister.

BUTROS BUTROS GHALI, FRM. U.N. SECRETARY-GENERAL: It was a lonely president going to Jerusalem. Discouraged is essential if you want to achieve a peace or we want to progress in a peace process.

BLITZER: It was an extremely high-risk venture for President Carter. There was no guarantee of success. JIMMY CARTER, FRM. PRESIDENT OF THE UNITED STATES: There's only been one time in history when both the United States and the Soviet Union put their nuclear forces on alert, and that was over the Middle East.

BLITZER: The stakes could not have been higher. Remember, it was only five years after the 1973 Arab-Israeli war when that nuclear alert occurred. Failure could have plunged the region back into another all-out war. President Carter kept his Egyptian and Israeli guests holed up in the secure and secluded presidential retreat in Maryland's Catoctin Mountains. The strategy, don't let them leave without a deal.

UNIDENTIFIED MALE: I believe Sadat was an outstanding statesman, and Mr. Begin raised to the occasion. And I think that president carter did an outstanding job. I think that was probably the most important achievement in his presidency, and he worked very hard personally day in and day out to overcome the differences.

BLITZER: In the end, on that September 17, 1978, Egypt, the largest and militarily most powerful of Arab states agreed to make peace with its neighbor, Israel. The formal peace treaty was signed the following March at the White House.

(on-camera): And despite the ups and downs of the peace process and the often tense relationship with between Israel and Egypt since then, that treaty remains in effect today.

Tragically Anwar Sadat was later assassinated and paid for that peace with his life. Wolf Blitzer, CNN, Washington.

(END VIDEOTAPE)

ZAHN: And for some Israelis these days, the wall seems to be more real than the peace process.

To debate whether the wall is the only way the Israelis and the Palestinians can live together. I'm joined by Ambassador Alon Pinkas. He is the Israeli consul general in New York. And in Washington today, James Zogby. He is the President of the Arab-American Institute. Welcome back gentlemen.

Mr. Ambassador, do you really believe that building this wall will ensure peace between Israelis and Palestinians?

AMB. ALON PINKAS, ISRAELI CONSUL GENERAL: No. No, I don't, and there are no guarantees. And you know going -- trying to tie this to Wolf Blitzer's piece, one of the tragedies of the Israeli-Palestinian political process is that the Palestinians never had a President Sadat of their own. They never had someone with a vision, with the statesmanship, with the patience, with the understanding and recognition of reality and reason. Now...

ZAHN: Go back to the issue of the wall.

PINKAS: I will. I am. ZAHN: And if you don't think that's going for create peace, then why build it?

PINKAS: If I may, Paula, in 30 seconds, explain to your viewers, what this wall is. There are two kinds of walls and sometimes they are mistakenly interchangeable. One wall is -- emanates from the context of what we called unilateral separation. Meaning that after the Camp David summits of July 2000, when we realized, as did then President Clinton, there is no viable Palestinian interlockiture (ph). The idea was to build a fence based on a demographic and political line that would somehow be proportional or stem from the ideas that floated around at Camp David. Meaning the 1967 border with modifications that would include some of the settlements. That was unilateral separation, but it has its advocates, and it has its detractors in Israel. This is not the fence that we're talking about right now.

ZAHN: Okay. Let Mr. Zogby react to the first portion of that, and then come back to this part of the fence that you want to address secondarily.

JAMES ZOGBY, PRES. ARAB-AMERICAN INSTITUTE: This wall, Paula, is not about peace. It's actually about prolonging Palestinian despair and anger. Israel can't accept the responsibility that it has for producing the despair and the anger that exits in the West Bank today, but it is responsible. This wall is not about security, because when the wall is finally built, as it's planned right now, over a third of a million Palestinians are going to be locked inside the Israeli side.

They're going to be locked away from their land, away from their jobs and away from their social services. The Palestinians who live along the wall -- the Palestinians along wall, Paula, are losing their land and losing their orchards. In fact, in one outrageous case, 65,000 olive trees were uprooted and Israel took the trees and sold them, then to Israeli farmers who replanted them on their land.

This is a land grab. It's theft. And it's creating a very desperate situation.

ZAHN: Let me ask you a simple question, Mr. Zogby?

ZOGBY: Sure.

ZAHN: If that line was moved back, the fence line, beyond, or back to the green line. Would that be acceptable?

ZOGBY: Look, if Israel decided that it's going to evacuate the West Bank and Gaza and east Jerusalem and put the wall there, separating where they were at the 67 border and allowing Palestinians to breath free in their own land without a half million Israeli settlers there and allowing the Palestinians to move out to Jordan and move out to Egypt where they can do business back and forth, it might work

But to encapsulate them as they are in what amounts to a reservation or a prison pen of despair and poverty is a disaster and it's happening while we speak. And no one is stopping them.

ZAHN: Mr. Pinkas, react to what Mr. Zogby just said.

PINKAS: Mr. Zogby, you could do much better than this liberal use of numbers, 65,000 trees stolen, 500,000 settlers.

ZOGBY: I got those numbers from the Israeli press, Mr. Ambassador.

PINKAS: No you didn't. That's impossible.

ZOGBY: Yes, actually I did.

PINKAS: The Israeli press...

ZOGBY: Yes, and if you look on my Web site you'll see the articles which we took right from the Israeli press. You're own people are furious with this wall.

ZAHN: Ambassador Pinkas, you do acknowledge there will be Palestinians, if you stick with this line where the fence is supposed to be built, where Palestinians will be trapped, as Mr. Zogby just said.

PINKAS: Yes, that's correct. I was going to get to this fence at the beginning of what I tried to explain.

This fence -- this fence is a security fence. The unbearable and intolerable ease with which Palestinians cross the invisible demarcation line, the so-called Green Line, and blow themselves up in cafeterias and pizza parlors and shopping malls and in buses -- on buses and in schools has to stop. Now, for lack...

ZAHN: I can only give you 10 more seconds, Mr. Ambassador.

PINKAS: OK. In the absence of a Palestinian leadership that is capable of doing what Sadat has done, and not come up with these lame excuses about 65,000 stolen trees, as if the entire Israeli/Palestinian conflict is about Mr. Zogby's Web site and the trees...

ZOGBY: Oh, that's a disgrace.

PINKAS: Yes, it is a disgrace.

ZAHN: All right. Mr. Zogby, you only get 10 seconds for a final thought and we really got to go. And that's all I can give you.

ZOGBY: The issue here is that it's about Palestinians being treated as equal human beings and they're not. And if we did respect them and gave them the free space, there wouldn't be settlements being built in the West Bank and there wouldn't this wall -- there wouldn't be a need for the wall. And the tragedy is that we're not doing what we can to stop it.

ZAHN: We've got to end it there. James Zogby, Alon Pinkas, thank you, or joining us tonight.

Coming up tonight, an update on Hurricane Isabel just a couple of hours from hitting shore.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: I just remember feeling really sad and wanting to go home and needing my mother and my family more than anything -- anytime in my life.

(END VIDEO CLIP)

ZAHN: Also ahead, a dramatic firsthand accounts of life inside a sex slave ring. Just ahead.

(COMMERCIAL BREAK)

UNIDENTIFIED MALE: Three.

ZAHN: Welcome back.

This week, a 32-year-old Detroit man was sentenced to 18 to 40 years in prison, after pleading no contest to multiple prostitution, kidnapping and rape counts. He was charged for his role in a multistate sex ring dating back to 1995. Dozens of teens and young women say Henry Davis forced them into prostitution, and that number may have gone even higher if it weren't for a 17-year-old girl from Ohio named Ericka.

Her challenge began last January in downtown Cleveland.. She was waiting for a bus in when a woman offered her to sell jewelry and then offered her a job.

(BEGIN VIDEOTAPE)

ZAHN (voice-over): Moments later she says another man came around the corner and forced her into an SUV at gunpoint. From there, Ericka says she was taken to Detroit to work in a teen sex ring that stretched across four states. Soon, she says, she was forced to have sex with the ringleader, Henry Davis. She said she saw girls beating for breaking his rules and was warned the same would happen to her.

Four days later, a chance to escape. Ericka says Davis took the girls to the mall to get their hair and nails done, because they were going to be stripping at an illegal club. Ericka ran over to a security guard begging for help.

DORIAN MCCONNELL, SECURITY GUARD: She just broke loose from the crowd and ran over to me and, like, literally just ran behind me and grabbed me and was asking for help. She was like, Please help me. Don't let me leave with him.

ZAHN: Ericka then led police to the Detroit home where they say Davis ran the sex ring.

CMDR. GERARD SIMON, DETROIT POLICE: This guy picked his targets, young girls who -- unsure of themselves, were runaways, didn't have a place to go to.

(END VIDEOTAPE)

ZAHN: Earlier today, I had a chance to talk with the now 18- year-old Ericka and her attorney, Avery Friedman. She decided to tell her story in public, but has asked us not to show her face or share her last name with you. And I started off about asking her how the saga began.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: Henry Davis came around a corner and told me to get into a truck and then we drove to Detroit.

ZAHN: And you ended up doing stuff you didn't want to, right? Weren't you forced to have sex with Mr. Davis and his brother?

UNIDENTIFIED FEMALE: Yes.

ZAHN: Did they threaten you?

UNIDENTIFIED FEMALE: Yes, if I didn't do it.

ZAHN: Did you try to get away at that point?

UNIDENTIFIED FEMALE: No, because I couldn't get away at that point. I was always surrounded by other girls that was with henry Davis.

ZAHN: Did it make sense what was happening at that point? Was it clear that these other young women were kidnapped as well and they were being forced to have sex?

UNIDENTIFIED FEMALE: It only seemed like two or three girls that I had encountered had got kidnapped and wanted to leave and they couldn't, but the rest of them seemed OK and fine with what was happening.

ZAHN: Avery, as you've heard Ericka tell her story tonight, can you help us understand how it is possible that this sex ring was active for eight years? And there wasn't even an attempt to shut it down?

AVERY FRIEDMAN, ERICKA'S ATTORNEY: This ring operated for eight years, and it took one young lady to bust the operation. It's astonishing, but then we know that there are 700,000 young people in America who have either left their homes or abandoned or who have been kidnapped. And they find themselves in circumstances like this sex slave ring that Henry Davis operated.

ZAHN: It must have broken your heart to hear that, for some of these women, it was better for them to stay in the sex ring than it was to go back to their homes?

UNIDENTIFIED FEMALE: Yes, it was. I never thought that the problem was that big. ZAHN: Were you worried that a life of prostitution is what lied ahead for us if you weren't able to get out?

UNIDENTIFIED FEMALE: I was going to get out some way. I was not going to stay there. I had to get back home to my mother and father, and I knew that they was going to be looking for me anyway. I had no intentions of staying.

ZAHN: All right. So you're thinking in your mind, I've got to get out of here. These people are making me do things I don't want to do. Then what happened?

UNIDENTIFIED FEMALE: A girl told me that I was going to have to go to the mall to get our hair and nails done. So I ran to the security guard in Footlocker, and he helped me.

ZAHN: But not without a challenge.

UNIDENTIFIED FEMALE: Yes. It was a struggle. I had to run away from them. There was four people chasing me into the Footlocker. Then once we got in there they was grabbing me and trying to convince the security guard that I was crazy and that I should go back with them. I'm really not mad or bitter, because what was supposed to happen then happened. He's in jail right now. So what would I be bitter about? I'm going to get better one day and there's no reason to be mad or bitter about anything right now.

ZAHN: Avery, I certainly don't want our audience to misinterpret the tone of what Ericka had to say, because at times she has sounded quite nonchalant about the horror of what she's been through.

FRIEDMAN: The exterior is a little bit deceiving. The fact is that Ericka is a typical teenage American girl. And this could happen to any typical teenage American girl.

So while you see the exterior in sort of a placid way, Paula, the fact is she is recovering, but she's a young woman of extraordinary courage and extraordinary bravery. And without her, we would have never entered -- ended this criminal enterprise.

(END VIDEOTAPE)

ZAHN: And we wish Ericka tremendous luck as she tries to rebuild her life. Thank you Ericka and Avery Friedman.

Coming up tomorrow, the No. 2 man at the State Department, Richard Armitage.

But still ahead, we will be talking with this man, Michael Caine. Stay with us.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

MICHAEL CAINE, ACTOR: That's it. Until tomorrow. Good night, you princess of Maine, you kings of New England.

(END VIDEO CLIP)

That memorable scene is from the film the "Cider House Rules". The role Dr. Wilbur Larch nabbed Michael Caine the second Oscar just three years ago. And during his acceptance speech, Caine saved his highest praise for the young Haley Joel Osment, his competition that year for best supporting actor. Well, fast-forward to 2003, the two actors are sharing the big screen for the first time. Their film "Secondhand Lions" which co-stars Robert Duval, opens this weekend.

And Michael Caine and Haley Joel Osmond join me now. So good to see both of you.

CAINE: Great to see you.

HALEY JOEL OSMENT, ACTOR: Good to see you.

ZAHN: Congratulations.

CAINE: Thank you.

OSMENT: Thank you.

ZAHN: You must have been blown away to hear an actor of Michael's caliber say the nice things he said about your work. And then not that to many months later end up working with him.

Is it intimidating or was it intimidating?

OSMENT: No, not intimidating at all, because he's such a great guy.

CAINE: We're not intimidated, are we?

OSMENT: No, not at all.

ZAHN: You have a couple more years in the business than he has.

CAINE: Well, it seems like that, but he's so mature. Somebody asked me what is it like working with a child actor, and I said, I don't know I have never worked with one. He's a real actor, a grownup actor who happens to be for the moment a child. And it won't last long anyway.

ZAHN: So there was no intimidation on your part when you knew you were going to co-star in a movie with Michael Caine and Robert Duval?

OSMENT: No. No. You can be thrilled and excited and in awe without being intimidated. I mean, intimidated is more of a negative thing, like they separate themselves from you, and they never did any of that on set. They treat you like an equal, and that's what makes it so great to be around them.

ZAHN: You kind of grow up on this film too. I heard your voice cracked in the middle.

OSMENT: Yes.

ZAHN: Thank goodness the film was filmed cronlogicly.

OSMENT: Yes, great timing. Great timing. But it was also intentional, too, because it was in that period, where I got into certain frequencies, the voice would be unpredictable. And we realized that would be a good thing for the role. Because Walter is sort of uncertain at the beginning of the film. And through transitioning and getting control of his voice that shows how he's become more control of him self and more man.

ZAHN: You're right, he's not a kid.

CAINE: I'll tell you he's not. No.

ZAHN: Lets talk a little bit about "Secondhand Lion."

CAINE: Yes.

ZAHN: It's this great story about two -- can I call you grumpy?

CAINE: Grumpy old Texans.

ZAHN: (UNINTELLIGIBLE) Texans. After a lifetime of adventure, basicly come home to Texas to die.

CAINE: That's what they said. We're old, we're useless, and we've come home to die. And they get stuck with him. He doesn't like them, they don't like him, and the picture is about how they change each other.

ZAHN: You seem to be attracted to those roles that. Where there are transitions in the psych of a character.

CAINE: I read the first 10 pages, last 10 pages, and if nothing has happened in between, the other 100 pages are no good, so that saves me from reading a load of crap scripts.

ZAHN: Fewer still sent you way though. You have to pretty discriminating these days.

CAINE: (UNINTELLIGIBLE)

ZAHN: Your career spans several decades, and you're still getting top notch roles at a time when women of a certain age can't get a arrested.

CAINE: Yes.

ZAHN: What is a lesson to be learned for like Haley Joel when he looks at your trajectory and your longevity in the business?

CAINE: Well, I think the basic thing is you start off as a leading man and get the girl and lose the girl. It's all the same. It's always the same in every movie. But then when you get to a certain age, you start to change. And what the thing to do is to pick something absolutely different from the last time, and surprise people. So that's longevity comes from that, and he will be extraordinary at that, I'm telling you.

ZAHN: The film is an absolute delight. You have a great crossover audience for it.

OSMENT: Yes.

CAINE: Yes, very much so, because it's a family film. You say, well, we'll take the kids, and I say, no, you're going to enjoy it first. Let the kids take you.

ZAHN: Yes, lots to enjoy on a bunch different levels.

OSMENT: Yes.

CAINE: Yes.

OSMENT: So good to see the two of you together. Keep walking the red carpet together, and we'll be talking a lot.

CAINE: Thank you.

(CROSSTALK)

ZAHN: Good luck to both of you.

CAINE: Thanks very much.

OSMENT: Thanks.

OSMENT: And again, good of you to drop by.

When we come back, an update a Hurricane Isabel bearing down on North Carolina and Virginia at this our. We'll be right back.

(COMMERCIAL BREAK)

ZAHN: Before we go tonight, we wanted to bring you an update on Hurricane Isabel. The fringes of the storm have reached the coast, as you can see in this live picture from Virginia Beach this evening. Tropical storm force winds are likely along the North Carolina coast by midnight. The eye of the storm is expected to make land fall near Cape Lookout, North Carolina around midday tomorrow. Forecasters say it may still be packing hurricane strength winds as it passes over Richmond, Virginia and Washington. That's the latest we got on Hurricane Isabel at this hour.

Thank for being with us tonight. We hope stay tuned to CNN. Tomorrow on this program, Colin Powell's right hand man, Deputy Secretary of State Richard Armitage. Thanks again for join us tonight. Good night.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com





Halliburton Ties>


Aired September 17, 2003 - 20:00   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
PAULA ZAHN, CNN ANCHOR: New calls for an investigation into Vice President Dick Cheney's connection with his former company, a company that is getting billions to rebuild Iraq.
The dramatic story of how one girl escaped life as a sex slave and helped police bring down a multistate teen prostitution ring. We'll meet the heroic young woman.

And Oscar winner Michael Caine on his legendary film career and his new starring role. He joins us tonight.

Good evening and welcome. So good of you to join us tonight.

Also tonight, Hurricane Isabel is just hours from lashing North Carolina and Virginia with tropical-storm-force winds. We're going to take you live to the Outer Banks.

We'll also have the news on the resignation of New York Stock Exchange Chairman Richard Grasso. He quit today, under fire for his $140 million pay package.

And our debate tonight: On the 25th anniversary of the Camp David accords, is a fence the only way that Israel and the Palestinians can live together?

And our exclusive series of reports from Korea's demilitarized zone; tonight, a rare trip to the North Korean side.

Now, here are some of the other headlines you need to know right now.

Authorities in Tennessee say an armed man is holding a group of students and a teacher hostage at Dyersburg State Community College. Authorities say the man first took 12 to 16 people hostage, before releasing four of them. A SWAT team and negotiators are on the scene.

And as we've said, Hurricane Isabel ready to strike North Carolina and Virginia by midnight tonight.

For more on that, I'm joined live by Susan Candiotti, who is standing by in Kill Devil Hills, North Carolina.

Good evening, Susan. What is believed to be the storm track tonight?

SUSAN CANDIOTTI, CNN NATIONAL CORRESPONDENT: Well, we expect to start feeling hurricane-force winds, or, at the very least, tropical- force winds by midnight tomorrow. And certainly, by daybreak tomorrow, we ought to be in the thick of it, as the eye is supposed to make landfall at around noon or 1:00 tomorrow afternoon.

So, as the sun goes down, anxiety levels are really on the rise here among authorities who have to stay and residents who have chosen to stay on this part of the Outer Banks. There has been a mandatory evacuation order in effect since noontime yesterday. And authorities say about 75 percent of the population has paid attention to it and has left the barrier island, boarding up a lot of the homes here on their way out.

So, as you drive through town, you barely encounter any traffic. Picture Kill Devil Hills. That's where we're reporting to you from at this hour. It's only five miles long and two miles wide, one of the barrier islands here. And they are expecting a storm surge of anywhere from seven to 11 feet and waves of up to 20 feet on top of that.

And I got new numbers just a little while ago from state emergency officials. They say that, in evacuation shelters statewide, the numbers, again, within the last hour, have gone from about 120 people to at least 400 people or more. So, clearly, Paula, as the storm gets closer, more and more people are getting more worried and are moving out.

ZAHN: And what are you hearing once this storm makes landfall about what major cities may be in its path?

CANDIOTTI: Well, certainly, it appears mostly points south, although we do appear to be, in this area, in the northeast quadrant of the storm, so anywhere from here along the Outer Banks.

They can't say precisely for sure, but here in the Outer Banks and then down to Cape Hatteras, Cape Ocracoke, then and farther south, including Morehead City and New Bern, and the Atlantic Beach area down there, a lot of people, they say most of the people filling up the shelters are from down points farther south of us, Cape Lookout, Cape Fear, even.

But even a bit -- as I said, Morehead City and New Bern are the two cities where people have mostly cleared out from the Outer Banks and those barrier islands inland to get away from the storm.

ZAHN: Well, Susan, keep your moorings when those winds kick up. We need you. Susan Candiotti reporting live for us, thank you.

CANDIOTTI: We will.

ZAHN: And some new questions tonight about a much-discussed, but perhaps little understood company and Vice President Cheney's ties to it. Halliburton is a Houston-based energy service and construction company turned political hot potato and fodder for late-night TV comedians.

(BEGIN VIDEO CLIP, "THE LATE SHOW WITH DAVID LETTERMAN") DAVID LETTERMAN, HOST: How many of you folks saw President Bush on the television last night with his speech about Iraq?

(APPLAUSE)

LETTERMAN: well, he's asking Congress for $80 billion to help rebuild Iraq, $80 billion. And when you make out that check, remember, there are two L's in Halliburton.

(LAUGHTER)

(END VIDEO CLIP)

ZAHN: Halliburton has come under fire from Democrats because of what Republicans insist is a mere coincidence. Halliburton is both the former employer of Vice President Cheney and a big beneficiary of government contracts aimed at rebuilding Iraq.

"In Focus" tonight, We are focused by John Fund, a columnist for the online edition of "The Wall Street Journal." He joins us from Washington tonight.

Always good to see you, John. Welcome.

JOHN FUND, "THE WALL STREET JOURNAL": Thank you.

ZAHN: First of all, do you believe Iraq is a giant payday for Halliburton?

FUND: Well, certainly, they are going to get a lot of work. They do a lot of work in putting out oil fires. They do a lot of work in reconstruction. They're an energy company.

Iraq is the exactly the kind of thing that they tend to want to do. Now, of course, the problem is that at least one or two of these contracts were not let out through competitive bidding. And, as a result, there are some suspicions. But, during time of war, sometimes you can't go out and have competitive bidding. Sometimes, you just got to get the job done.

ZAHN: But isn't there also the other issue that Congressman Waxman has pointed out today that Halliburton has gotten twice as much business as its nearest competitor?

FUND: Well, that may be a legitimate argument.

On the other hand, some would argue that Halliburton is two or three times bigger than any other firm in this operation. So the question becomes, what in the world was the undue influence, if any? So far, there's no evidence of that, because the vice president has his finger in many pies, but apparently government contracting isn't one of them. And there's no indication that he ever had any role in letting out these contracts.

ZAHN: Let's go through some of the numbers with the audience right now. We're going to put up on the screen some of the salary figures that the vice president has enjoyed since the year 2000.

Then you jump ahead, when he had -- came into the vice presidency. And he received about $368,000 in deferred compensation from Halliburton. He continues to claim he has no financial ties to Halliburton. How could he say that?

FUND: Well, he does have income.

He's doing very, very well by Halliburton. But the income is deferred and it's paid regardless of the performance of the company. So, yes, he is benefiting from Halliburton, but he doesn't get more money if Halliburton does better.

ZAHN: Let's go back to this whole issue of no-bid contracts. You've no doubt have heard some of the complaints of smaller contractors, who say they couldn't get arrested when they tried to make contacts at the Defense Department to try to get business. They said they could have done the job of putting out some of these oil fires in Iraq for half the amount that Halliburton charged.

FUND: I think that's a legitimate complaint, but I don't necessarily think it means undue influence for Halliburton.

Let's face it. The government is a big enterprise. It's used to dealing with big enterprises. As we know, when the government tries to have minority contracting or contracting for women, it often doesn't reach down and find smaller firms. That's a separate problem, though, as to whether or not Halliburton was steered this contract through undue influence because of Vice President Cheney. The government is a big organization. It tends to deal with other big organizations.

ZAHN: One final question for you. You made the point that Vice President Cheney, at his level of the government, would have nothing to do with contracts anyway. That had to do with the Army Corps of Engineers.

But just isn't his mere position as vice president one that would make some of the business go to Halliburton because of his contacts with the company and his history there?

FUND: Some people question that. That's why they're calling for an investigation. But there are ways to look at this without turning it into a media circus.

The General Accounting Office does a lot of work in trying to track down government contracts and what happens. That may be a way to go. I'm not saying there isn't some cause for questions here. But so far, I don't see a smoking gun or even a warm barrel.

ZAHN: John Fund of "The Wall Street Journal," thanks so much for your time tonight.

And we're going to move on. Vice President Cheney denies having any financial interest in Halliburton, as we just said, or steering any contracts in Halliburton's direction. (BEGIN VIDEO CLIP, "MEET THE PRESS")

DICK CHENEY, VICE PRESIDENT OF THE UNITED STATES: Since I left Halliburton to become George Bush's vice president, I've severed all my ties with the company, gotten rid of all my financial interests. I have no financial interest in Halliburton of any kind and haven't had now for over three years.

And, as vice president, I have absolutely no influence of, involvement of, knowledge of, in any way, shape or form of contracts let by the Corps of Engineers or anybody else in the federal government.

(END VIDEO CLIP)

ZAHN: Well, many Democrats remain skeptical of that.

Senator Frank Lautenberg of New Jersey joins us from Capitol Hill.

Good evening, sir.

SEN. FRANK LAUTENBERG (D), NEW JERSEY: Good evening.

ZAHN: So what is your core argument here? That the vice president is lying to the American public?

LAUTENBERG: That, we must find out.

But the fact of the matter is, for the vice president to deny on such an important media outlet as Tim Russert's "Meet the Press," to deny that he has any financial interest when, in fact, he's still getting compensation and will for the next three years from Halliburton, and he still has 433,000 shares on option. Though he has pledged to give them away, the fact is, he has an interest and can't deny it. And that's the problem.

ZAHN: But there is nothing in the law that doesn't -- that wouldn't allow for Vice President Cheney to get this deferred compensation.

LAUTENBERG: That's true.

But there is something in ethical behavior when it comes from the White House. And you yourself talked about the fact that Halliburton got a no-bid competitive contract, no competition, that's now somewhere close to $1 billion. It got another contract that was competitively bid that has got $1 billion.

And, listen, if someone is giving out contracts and the name Halliburton comes up, can it ever be denied that there is no association with the vice president? I think it's kind of a sweetheart place to be, I must tell you. And that's the thing that's got us exercised. And a lot of people are concerned about it. If you ask any of the American people whether, when they get a paycheck, $160,000, $200,000, whether that's the financial connection to the company that writes those checks, I would think so.

ZAHN: But are you saying that the vice president isn't entitled to refer -- to get this deferred income? He negotiated that. Or are you saying that he should receive that once he's out of office?

LAUTENBERG: Well, he either should have received it all then and been done with it or defer it now until his last term, whenever that is, is done with. That's what I think.

The vice president, sitting in the White House, speaking for the whole of the American people, says, oh, I have no financial interest, but yet there is a financial interest. We're not talking about the amounts. We're not talking about the form. What we're talking about is, when he says he has no financial interest, it is either a misstatement, an accident, or it's deliberate. But the fact is, it's a misstatement.

ZAHN: Senator Frank Lautenberg, thanks so much for your time.

LAUTENBERG: OK.

ZAHN: Appreciate it.

Could this come back to haunt the White House politically next year?

Joining us now, former Pentagon spokeswoman Victoria Clarke in Washington and "TIME" columnist Joe Klein, who joins us here in our New York studios tonight.

Good evening to both of you. Welcome.

(CROSSTALK)

ZAHN: Torie, I'd love to start with you this evening.

VICTORIA CLARKE, FORMER PENTAGON SPOKESPERSON: Sure.

ZAHN: Do you acknowledge that the appearance of Halliburton getting this huge no-bid contract raises some pretty potent questions?

CLARKE: Well, if you actually look at the facts, there are very few companies around the world that are the size and scope to handle some of those tasks in the rebuilding of Iraq.

Most of the bids have been competed. There have been some circumstances, as John Fund said, where they haven't, but it's been done in a very up-front, transparent kind of fashion, as has been Vice President Cheney's behavior on this. It is a matter of public record what he has done. And in this case, Senator Lautenberg, with all respect -- he's a former businessman -- he knows these things -- is doing what countless people have done. Now, this is compensation he earned years ago and he's getting it in these years.

I'm just struck by the fact that people like Senator Lautenberg know better. The American people are not exercised about this. They get up every day and they're thinking about things like, how are we going to rebuild Iraq and move forward there? They're thinking about things like the economy here in the United States. They are not exercised about this.

And I think some people, with all due respect, are just trying to stir up a storm where there isn't one.

ZAHN: Are you exercised by this, Joe Klein?

JOE KLEIN, "TIME": Well, I think that this is really serious business and we have to be very precise about it.

Torie, who I see is just wearing just one color today, rather than her usual multicolored outfit

(CROSSTALK)

ZAHN: She's toned it down for you, Joe.

CLARKE: Right.

First of all, I'm pretty sure that the vice president didn't call Don Rumsfeld and say, you got to give this contract to Halliburton.

CLARKE: I can promise you that.

(CROSSTALK)

ZAHN: Well, the vice president has said that.

KLEIN: Second of all, Kellogg, Brown & Root, the subsidiary of Halliburton that does a lot of this reconstruction work, has a long and very solid track record of doing this work well.

And in some of the contracts, like taking care of the oil fields, you had to let it very quickly. Having said that, you have an administration here that is just laced with oil company executives. And it is making policy in Iraq and making policy in Saudi Arabia and throughout the Middle East. And, therefore, it has to be cleaner than clean.

(CROSSTALK)

ZAHN: When you say making policy, you're talking just by virtue of these contracts or these

(CROSSTALK)

KLEIN: I'm talking about going to war in Iraq and not holding Saudi Arabia to account for its longtime relationship with al Qaeda, and the fact that 15 of the 19 hijackers were from Saudi Arabia, and the fact that the Bush family and the Halliburton company has a longstanding relationship with the ruling family in Saudi Arabia.

So, given those facts, it's really important for the vice president, the Defense Department and others to be very clean about this. The vice president shouldn't be taking money. Torie's old associate, Assistant Secretary Doug Feith, shouldn't have his law rounding up, rustling up clients who want to do business in Iraq.

And, also, the vice president should have had a far more open energy policy process, which he closed to the public.

(CROSSTALK)

ZAHN: Torie, jump in here.

CLARKE: Well, he's just piling insinuation on top of allegation and doing 14 different issues.

The facts are these. Everybody in this country who thinks about it wants Iraq rebuilt as quickly as possible. The oil policy that he speaks of is to maintain and preserve and get the oil flowing and get that resource going for the Iraqi people. That's the beginning and the end of it. The facts are that there are only a few companies that can do the kind of work that needs to be done.

And the facts are also that it has been a very, very transparent and open process, more so than most of the predecessors, in terms of public disclosure.

ZAHN: Has it been transparent, Joe?

KLEIN: In this particular case, she's right.

I think that what the Democrats should be investigating is not just these contracts, but the whole policy-making process that led to the energy policy that this country has, and, also, on the most important level, why we went to war in Iraq and why we went so easy on Saudi Arabia.

(CROSSTALK)

ZAHN: Torie, you get the last word. And I only give you about 10 seconds.

CLARKE: Sure.

Once again, on the 14 different topics.

KLEIN: Only one topic, Torie, oil.

CLARKE: But what would be a good use of Congress' time is finding a way to make it easier and more constructive for a lot of different companies to work with the government, because as John Fund said, it's very different working with a big bureaucracy like the U.S. government.

ZAHN: And there's also the story of these smaller contractors that said they tried to make contact with the Pentagon and couldn't get their phone calls

(CROSSTALK) KLEIN: There's a way to do what Torie said. And I agree with her completely about getting this job done as quickly as possible. The way to do it is to internationalize this, which the Pentagon has been fighting every step of the way. And it's been a disastrous policy.

ZAHN: We've got to leave it there this evening.

Joe Klein, Victoria Clarke, thank you for both of your perspectives this evening.

CLARKE: Thank you.

ZAHN: And the top man at the New York Stock Exchange has resigned. Coming up, we're going to look at the $140 million pay package that led to his demise. That's in tonight's edition of "Plain English," if I can speak in plain English, that is.

And a little bit later on, I'll be speaking with a film legend. Michael Caine joins us to talk about his new movie, as well as his career and life in pictures.

Please stay with us.

(COMMERCIAL BREAK)

ZAHN: Welcome back.

Time NOW for our "Plain English" segment, a closer look at Richard Grasso's decision today to resign his powerful post as head of the New York Stock Exchange. Grasso been under increasing fire for his lavish pay, benefit and retirement package.

Chris Huntington has been following the story, joins us now.

Welcome.

CHRIS HUNTINGTON, CNN CORRESPONDENT: Paula, welcome. Hi. How are you?

ZAHN: It's a pretty exciting one to follow. It happened at the last minute, just about an hour and a half, I guess, before we went on the air, Dick Grasso saying, I'm not going anywhere. And then he resigned.

(CROSSTALK)

HUNTINGTON: Well, there's been a brave face from the exchange and from the board of directors for several weeks now. Of course, there's been huge mounting pressure.

Late this afternoon, apparently Grasso called an emergency conference call of all the directors, walked in and said, I'll resign if you guys ask me. So he left the room or left the call. The directors spent just a couple of minutes, worded a question to him, and he accepted. So... ZAHN: And no one should have been surprised by that.

HUNTINGTON: Nobody was surprised. This has been coming.

And, of course, with the big development yesterday of the major pension funds, the biggest funds in America, the California retirement funds for state employees there, and the New York pension fund, saying he has got to go, that's huge leverage on Wall Street.

ZAHN: Let's look at that $140 million pay package. So his base salary is 1.4. You look at this graphic up on the screen. You look at the total compensation.

(CROSSTALK)

ZAHN: Now, there's nothing illegal about this compensation package.

HUNTINGTON: Nothing. There's nothing illegal. And that's a very important point, Paula, is that there's nobody who is alleging any kind of illegality on Dick Grasso's part, or even impropriety. In fact, he's being called a superb manager. The head of the SEC today praised him as a superb manager.

(CROSSTALK)

ZAHN: Poor judgment in accepting it?

HUNTINGTON: Poor judgment. Poor judgment.

For Dick Grasso, there was a magic number in compensation that he could have accepted somewhere probably south of $100 million, that, if he accepted it, the story we'd all be telling is, Dick Grasso worked his way up, rang the exchange brilliantly, retired a rich man, great story.

ZAHN: So what was it about the additional $40 million? Help me with this one, please.

HUNTINGTON: Well, Paula, it's -- the $140 million package was a bunch of very complicated benefit and retirement programs that, when all bundled together, including some that were earning interests automatically at 8 percent, and other premium bonuses piling on top of each other that most directors never had a chance to see on a single page at a single time.

When you put all those numbers together and you put out a figure of $139.5 million, with another 48 that he declined, that number is just overwhelming.

ZAHN: Sure.

HUNTINGTON: And people just simply -- you know the stock market. Perception and pack mentality rule. And when the perception was garnered that Dick Grasso is another greedy CEO, that overwhelmed the exchange. (CROSSTALK)

ZAHN: And that was the perception on the part of a lot of American investors, particularly small investors.

HUNTINGTON: Absolutely.

ZAHN: They thought this was absolutely outrageous.

HUNTINGTON: Sure.

Who knows? The California state treasurer yesterday threw up some math, saying that it would take the average worker something like 5,200 years to make $140 million. It's a number that is incomprehensible to most Americans and to most investors, even, who, frankly, had been losing money for two years.

So, in the last couple of years, while the exchange has not exactly -- or while the markets have not exactly been performing well, Grasso makes off with a huge package. It just was bad timing, bad judgment. And he's paying the ultimate price.

ZAHN: Chris Huntington, thank you for explaining that all to us this evening. Appreciate it.

(CROSSTALK)

ZAHN: Coming up: It is the most heavily guarded border in the world, so how can anyone cross the Korean DMZ? Well, Martin Savidge will show us how in an exclusive report.

And then a little bit later on: how a teenager brought down a multistate sex ring. My conversation with her when we come back.

(COMMERCIAL BREAK)

ZAHN: All this week, Martin Savidge is bringing us an exclusive series of reports from the most heavily guarded border in the world, Korea's demilitarized zone.

Today, he shows us how to get across that dangerous divide.

(BEGIN VIDEOTAPE)

MARTIN SAVIDGE, CNN CORRESPONDENT (voice-over): Crossing the military border dividing North and South Korea is rarely advisable, mainly because you could get shot. But on Conference Row at Panmunjom, over three days, we watched three ways it can be done.

First, you could be dead, as was the case of a North Korean swept down a rain-swollen river, his body ending up in the south. The pallbearers never crossed the line. Instead, only the casket makes the journey, passing form southern into northern hands. The second way is to be a tourist. Building T-2 is used as a neutral meeting place between North Korea, South Korea, and the United States. The border runs right through the middle of it. UNIDENTIFIED FEMALE: Over there is North Korea. Right now, I'm here, is South Korea side.

SAVIDGE: With just a few steps, visitors can rightfully earn the boast they were in the north.

North Korea has its own tours. And both sides share the same room, just never at the same time. To make sure there is no conflict, South Korean guards first inspect the room before their tours go in. The North Korean entry door must be locked from the inside. One guard braces himself against a wall while hanging on to the second, who throws the lock. This is done to prevent North Korean guards from trying to grab a South Korean guard.

Now, if you think that was interesting, wait until you see what happens next. The third and most unusual way to cross the border, the repair job. Last year, to improve communications between the two, North Korea was given a fax machine, prior to that, the only way they could talk was over this old Russian field phone. But every now and then, the fax machine needs to be serviced. And that's what has U.S. soldiers doing the unthinkable, stepping over the line into North Korea.

If not for the seriousness of the situation, it might sound like a joke. How many men does it take to fix a North Korean fax machine? Five. One to repair it, another to translate, and three to guard. Several minutes later, the fax is fixed and the Americans step back.

In the DMZ, life is sort of a new twist of an old saying: When it comes to crossing the line, the only thing certain are death and faxes.

(END VIDEOTAPE)

SAVIDGE: And, Paula, we brought you back live inside of building T-2 here at Panmunjom. That's the room that you saw all the tourists that were standing in.

It's interesting to point out, tourism is huge in the DMZ, the last place you would probably expect to find any tourists. From South Korea alone, 150,000 tourists make their way up here. And the North Koreans, as you saw, have their own tours. This is the neutral meeting site for the North Koreans and the United Nations command.

We should point out one humorous story. There are lots of them in their face-off here. There was a meeting that took place between the two sides a number of years ago. The North Koreans actually came into the room early and sawed down the legs of the chairs of the American delegation. When the Americans came in and sat down, they looked like kids at the kitchen table, puny -- just some of the shenanigans that takes place at the DMZ -- Paula.

ZAHN: Martin Savidge, thanks so much for that exclusive look.

And I wanted to remind all of you out there with this programming note that Martin will be back tomorrow with another look at life along Korea's very dangerous divide.

There's a new reality in the Middle East, a reality designed to separate Israelis and Palestinians. Coming up, we're going to debate whether it is the only way to peace.

And later: a horrible story out of the Michigan, where the alleged organizer of a multistate sex ring is facing decades in prison. We'll talk with a victim of that ring.

(COMMERCIAL BREAK)

ZAHN: If you're just joining us, here are some of the headlines at this hour. You need to know, clouds from the outer edge of Hurricane Isabel, already cover the U.S. East Coast. In a few hours tropical storm force winds will be blowing over North Carolina's, Outer Banks. The eye of the storm is expected to come ashore tomorrow. Richmond, Virginia and Washington may get hurricane-force winds.

And a man identified as Harold Kilpatrick, Jr., continues to hold some 12 to 16 people hostage in a community college classroom in Dyersburg, Tennessee. Police say Kilpatrick claims to be a member of al Qaeda.

President Bush says the U.S. has no evidence that Saddam Hussein was involved in the 9/11/2001 terrorist attacks. A new audiotape, supposedly from the former Iraqi leader angrily accuses the president of lying about the reason to invade Iraq.

Today is the 25th anniversary of the Camp David accord. Egypt made peace with Israel in return for giving back Egyptian territory occupied in war. Well, 25 years later, the pattern of trading land for peace is being replaced by a new reality, a wall made of concrete and barbed wire. Wolf Blitzer has seen it all and offers this perspective.

(BEGIN VIDEOTAPE)

WOLF BLITZER, CNN ANCHOR (voice-over): After 13 days of intense negotiations, then President Jimmy Carter managed to bring Egyptian President Anwar Sadat and Israeli Prime Minister Menachem Begin together for peace.

I remember that previous September. Sadat had broken ranks with the Arab world and his dramatic visit to Jerusalem to embark on the path towards peace. I covered the first Israeli-Egyptian peace talks that followed. Former U.N. Secretary-General Butros Butros Ghali was Egypt's foreign minister.

BUTROS BUTROS GHALI, FRM. U.N. SECRETARY-GENERAL: It was a lonely president going to Jerusalem. Discouraged is essential if you want to achieve a peace or we want to progress in a peace process.

BLITZER: It was an extremely high-risk venture for President Carter. There was no guarantee of success. JIMMY CARTER, FRM. PRESIDENT OF THE UNITED STATES: There's only been one time in history when both the United States and the Soviet Union put their nuclear forces on alert, and that was over the Middle East.

BLITZER: The stakes could not have been higher. Remember, it was only five years after the 1973 Arab-Israeli war when that nuclear alert occurred. Failure could have plunged the region back into another all-out war. President Carter kept his Egyptian and Israeli guests holed up in the secure and secluded presidential retreat in Maryland's Catoctin Mountains. The strategy, don't let them leave without a deal.

UNIDENTIFIED MALE: I believe Sadat was an outstanding statesman, and Mr. Begin raised to the occasion. And I think that president carter did an outstanding job. I think that was probably the most important achievement in his presidency, and he worked very hard personally day in and day out to overcome the differences.

BLITZER: In the end, on that September 17, 1978, Egypt, the largest and militarily most powerful of Arab states agreed to make peace with its neighbor, Israel. The formal peace treaty was signed the following March at the White House.

(on-camera): And despite the ups and downs of the peace process and the often tense relationship with between Israel and Egypt since then, that treaty remains in effect today.

Tragically Anwar Sadat was later assassinated and paid for that peace with his life. Wolf Blitzer, CNN, Washington.

(END VIDEOTAPE)

ZAHN: And for some Israelis these days, the wall seems to be more real than the peace process.

To debate whether the wall is the only way the Israelis and the Palestinians can live together. I'm joined by Ambassador Alon Pinkas. He is the Israeli consul general in New York. And in Washington today, James Zogby. He is the President of the Arab-American Institute. Welcome back gentlemen.

Mr. Ambassador, do you really believe that building this wall will ensure peace between Israelis and Palestinians?

AMB. ALON PINKAS, ISRAELI CONSUL GENERAL: No. No, I don't, and there are no guarantees. And you know going -- trying to tie this to Wolf Blitzer's piece, one of the tragedies of the Israeli-Palestinian political process is that the Palestinians never had a President Sadat of their own. They never had someone with a vision, with the statesmanship, with the patience, with the understanding and recognition of reality and reason. Now...

ZAHN: Go back to the issue of the wall.

PINKAS: I will. I am. ZAHN: And if you don't think that's going for create peace, then why build it?

PINKAS: If I may, Paula, in 30 seconds, explain to your viewers, what this wall is. There are two kinds of walls and sometimes they are mistakenly interchangeable. One wall is -- emanates from the context of what we called unilateral separation. Meaning that after the Camp David summits of July 2000, when we realized, as did then President Clinton, there is no viable Palestinian interlockiture (ph). The idea was to build a fence based on a demographic and political line that would somehow be proportional or stem from the ideas that floated around at Camp David. Meaning the 1967 border with modifications that would include some of the settlements. That was unilateral separation, but it has its advocates, and it has its detractors in Israel. This is not the fence that we're talking about right now.

ZAHN: Okay. Let Mr. Zogby react to the first portion of that, and then come back to this part of the fence that you want to address secondarily.

JAMES ZOGBY, PRES. ARAB-AMERICAN INSTITUTE: This wall, Paula, is not about peace. It's actually about prolonging Palestinian despair and anger. Israel can't accept the responsibility that it has for producing the despair and the anger that exits in the West Bank today, but it is responsible. This wall is not about security, because when the wall is finally built, as it's planned right now, over a third of a million Palestinians are going to be locked inside the Israeli side.

They're going to be locked away from their land, away from their jobs and away from their social services. The Palestinians who live along the wall -- the Palestinians along wall, Paula, are losing their land and losing their orchards. In fact, in one outrageous case, 65,000 olive trees were uprooted and Israel took the trees and sold them, then to Israeli farmers who replanted them on their land.

This is a land grab. It's theft. And it's creating a very desperate situation.

ZAHN: Let me ask you a simple question, Mr. Zogby?

ZOGBY: Sure.

ZAHN: If that line was moved back, the fence line, beyond, or back to the green line. Would that be acceptable?

ZOGBY: Look, if Israel decided that it's going to evacuate the West Bank and Gaza and east Jerusalem and put the wall there, separating where they were at the 67 border and allowing Palestinians to breath free in their own land without a half million Israeli settlers there and allowing the Palestinians to move out to Jordan and move out to Egypt where they can do business back and forth, it might work

But to encapsulate them as they are in what amounts to a reservation or a prison pen of despair and poverty is a disaster and it's happening while we speak. And no one is stopping them.

ZAHN: Mr. Pinkas, react to what Mr. Zogby just said.

PINKAS: Mr. Zogby, you could do much better than this liberal use of numbers, 65,000 trees stolen, 500,000 settlers.

ZOGBY: I got those numbers from the Israeli press, Mr. Ambassador.

PINKAS: No you didn't. That's impossible.

ZOGBY: Yes, actually I did.

PINKAS: The Israeli press...

ZOGBY: Yes, and if you look on my Web site you'll see the articles which we took right from the Israeli press. You're own people are furious with this wall.

ZAHN: Ambassador Pinkas, you do acknowledge there will be Palestinians, if you stick with this line where the fence is supposed to be built, where Palestinians will be trapped, as Mr. Zogby just said.

PINKAS: Yes, that's correct. I was going to get to this fence at the beginning of what I tried to explain.

This fence -- this fence is a security fence. The unbearable and intolerable ease with which Palestinians cross the invisible demarcation line, the so-called Green Line, and blow themselves up in cafeterias and pizza parlors and shopping malls and in buses -- on buses and in schools has to stop. Now, for lack...

ZAHN: I can only give you 10 more seconds, Mr. Ambassador.

PINKAS: OK. In the absence of a Palestinian leadership that is capable of doing what Sadat has done, and not come up with these lame excuses about 65,000 stolen trees, as if the entire Israeli/Palestinian conflict is about Mr. Zogby's Web site and the trees...

ZOGBY: Oh, that's a disgrace.

PINKAS: Yes, it is a disgrace.

ZAHN: All right. Mr. Zogby, you only get 10 seconds for a final thought and we really got to go. And that's all I can give you.

ZOGBY: The issue here is that it's about Palestinians being treated as equal human beings and they're not. And if we did respect them and gave them the free space, there wouldn't be settlements being built in the West Bank and there wouldn't this wall -- there wouldn't be a need for the wall. And the tragedy is that we're not doing what we can to stop it.

ZAHN: We've got to end it there. James Zogby, Alon Pinkas, thank you, or joining us tonight.

Coming up tonight, an update on Hurricane Isabel just a couple of hours from hitting shore.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: I just remember feeling really sad and wanting to go home and needing my mother and my family more than anything -- anytime in my life.

(END VIDEO CLIP)

ZAHN: Also ahead, a dramatic firsthand accounts of life inside a sex slave ring. Just ahead.

(COMMERCIAL BREAK)

UNIDENTIFIED MALE: Three.

ZAHN: Welcome back.

This week, a 32-year-old Detroit man was sentenced to 18 to 40 years in prison, after pleading no contest to multiple prostitution, kidnapping and rape counts. He was charged for his role in a multistate sex ring dating back to 1995. Dozens of teens and young women say Henry Davis forced them into prostitution, and that number may have gone even higher if it weren't for a 17-year-old girl from Ohio named Ericka.

Her challenge began last January in downtown Cleveland.. She was waiting for a bus in when a woman offered her to sell jewelry and then offered her a job.

(BEGIN VIDEOTAPE)

ZAHN (voice-over): Moments later she says another man came around the corner and forced her into an SUV at gunpoint. From there, Ericka says she was taken to Detroit to work in a teen sex ring that stretched across four states. Soon, she says, she was forced to have sex with the ringleader, Henry Davis. She said she saw girls beating for breaking his rules and was warned the same would happen to her.

Four days later, a chance to escape. Ericka says Davis took the girls to the mall to get their hair and nails done, because they were going to be stripping at an illegal club. Ericka ran over to a security guard begging for help.

DORIAN MCCONNELL, SECURITY GUARD: She just broke loose from the crowd and ran over to me and, like, literally just ran behind me and grabbed me and was asking for help. She was like, Please help me. Don't let me leave with him.

ZAHN: Ericka then led police to the Detroit home where they say Davis ran the sex ring.

CMDR. GERARD SIMON, DETROIT POLICE: This guy picked his targets, young girls who -- unsure of themselves, were runaways, didn't have a place to go to.

(END VIDEOTAPE)

ZAHN: Earlier today, I had a chance to talk with the now 18- year-old Ericka and her attorney, Avery Friedman. She decided to tell her story in public, but has asked us not to show her face or share her last name with you. And I started off about asking her how the saga began.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: Henry Davis came around a corner and told me to get into a truck and then we drove to Detroit.

ZAHN: And you ended up doing stuff you didn't want to, right? Weren't you forced to have sex with Mr. Davis and his brother?

UNIDENTIFIED FEMALE: Yes.

ZAHN: Did they threaten you?

UNIDENTIFIED FEMALE: Yes, if I didn't do it.

ZAHN: Did you try to get away at that point?

UNIDENTIFIED FEMALE: No, because I couldn't get away at that point. I was always surrounded by other girls that was with henry Davis.

ZAHN: Did it make sense what was happening at that point? Was it clear that these other young women were kidnapped as well and they were being forced to have sex?

UNIDENTIFIED FEMALE: It only seemed like two or three girls that I had encountered had got kidnapped and wanted to leave and they couldn't, but the rest of them seemed OK and fine with what was happening.

ZAHN: Avery, as you've heard Ericka tell her story tonight, can you help us understand how it is possible that this sex ring was active for eight years? And there wasn't even an attempt to shut it down?

AVERY FRIEDMAN, ERICKA'S ATTORNEY: This ring operated for eight years, and it took one young lady to bust the operation. It's astonishing, but then we know that there are 700,000 young people in America who have either left their homes or abandoned or who have been kidnapped. And they find themselves in circumstances like this sex slave ring that Henry Davis operated.

ZAHN: It must have broken your heart to hear that, for some of these women, it was better for them to stay in the sex ring than it was to go back to their homes?

UNIDENTIFIED FEMALE: Yes, it was. I never thought that the problem was that big. ZAHN: Were you worried that a life of prostitution is what lied ahead for us if you weren't able to get out?

UNIDENTIFIED FEMALE: I was going to get out some way. I was not going to stay there. I had to get back home to my mother and father, and I knew that they was going to be looking for me anyway. I had no intentions of staying.

ZAHN: All right. So you're thinking in your mind, I've got to get out of here. These people are making me do things I don't want to do. Then what happened?

UNIDENTIFIED FEMALE: A girl told me that I was going to have to go to the mall to get our hair and nails done. So I ran to the security guard in Footlocker, and he helped me.

ZAHN: But not without a challenge.

UNIDENTIFIED FEMALE: Yes. It was a struggle. I had to run away from them. There was four people chasing me into the Footlocker. Then once we got in there they was grabbing me and trying to convince the security guard that I was crazy and that I should go back with them. I'm really not mad or bitter, because what was supposed to happen then happened. He's in jail right now. So what would I be bitter about? I'm going to get better one day and there's no reason to be mad or bitter about anything right now.

ZAHN: Avery, I certainly don't want our audience to misinterpret the tone of what Ericka had to say, because at times she has sounded quite nonchalant about the horror of what she's been through.

FRIEDMAN: The exterior is a little bit deceiving. The fact is that Ericka is a typical teenage American girl. And this could happen to any typical teenage American girl.

So while you see the exterior in sort of a placid way, Paula, the fact is she is recovering, but she's a young woman of extraordinary courage and extraordinary bravery. And without her, we would have never entered -- ended this criminal enterprise.

(END VIDEOTAPE)

ZAHN: And we wish Ericka tremendous luck as she tries to rebuild her life. Thank you Ericka and Avery Friedman.

Coming up tomorrow, the No. 2 man at the State Department, Richard Armitage.

But still ahead, we will be talking with this man, Michael Caine. Stay with us.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

MICHAEL CAINE, ACTOR: That's it. Until tomorrow. Good night, you princess of Maine, you kings of New England.

(END VIDEO CLIP)

That memorable scene is from the film the "Cider House Rules". The role Dr. Wilbur Larch nabbed Michael Caine the second Oscar just three years ago. And during his acceptance speech, Caine saved his highest praise for the young Haley Joel Osment, his competition that year for best supporting actor. Well, fast-forward to 2003, the two actors are sharing the big screen for the first time. Their film "Secondhand Lions" which co-stars Robert Duval, opens this weekend.

And Michael Caine and Haley Joel Osmond join me now. So good to see both of you.

CAINE: Great to see you.

HALEY JOEL OSMENT, ACTOR: Good to see you.

ZAHN: Congratulations.

CAINE: Thank you.

OSMENT: Thank you.

ZAHN: You must have been blown away to hear an actor of Michael's caliber say the nice things he said about your work. And then not that to many months later end up working with him.

Is it intimidating or was it intimidating?

OSMENT: No, not intimidating at all, because he's such a great guy.

CAINE: We're not intimidated, are we?

OSMENT: No, not at all.

ZAHN: You have a couple more years in the business than he has.

CAINE: Well, it seems like that, but he's so mature. Somebody asked me what is it like working with a child actor, and I said, I don't know I have never worked with one. He's a real actor, a grownup actor who happens to be for the moment a child. And it won't last long anyway.

ZAHN: So there was no intimidation on your part when you knew you were going to co-star in a movie with Michael Caine and Robert Duval?

OSMENT: No. No. You can be thrilled and excited and in awe without being intimidated. I mean, intimidated is more of a negative thing, like they separate themselves from you, and they never did any of that on set. They treat you like an equal, and that's what makes it so great to be around them.

ZAHN: You kind of grow up on this film too. I heard your voice cracked in the middle.

OSMENT: Yes.

ZAHN: Thank goodness the film was filmed cronlogicly.

OSMENT: Yes, great timing. Great timing. But it was also intentional, too, because it was in that period, where I got into certain frequencies, the voice would be unpredictable. And we realized that would be a good thing for the role. Because Walter is sort of uncertain at the beginning of the film. And through transitioning and getting control of his voice that shows how he's become more control of him self and more man.

ZAHN: You're right, he's not a kid.

CAINE: I'll tell you he's not. No.

ZAHN: Lets talk a little bit about "Secondhand Lion."

CAINE: Yes.

ZAHN: It's this great story about two -- can I call you grumpy?

CAINE: Grumpy old Texans.

ZAHN: (UNINTELLIGIBLE) Texans. After a lifetime of adventure, basicly come home to Texas to die.

CAINE: That's what they said. We're old, we're useless, and we've come home to die. And they get stuck with him. He doesn't like them, they don't like him, and the picture is about how they change each other.

ZAHN: You seem to be attracted to those roles that. Where there are transitions in the psych of a character.

CAINE: I read the first 10 pages, last 10 pages, and if nothing has happened in between, the other 100 pages are no good, so that saves me from reading a load of crap scripts.

ZAHN: Fewer still sent you way though. You have to pretty discriminating these days.

CAINE: (UNINTELLIGIBLE)

ZAHN: Your career spans several decades, and you're still getting top notch roles at a time when women of a certain age can't get a arrested.

CAINE: Yes.

ZAHN: What is a lesson to be learned for like Haley Joel when he looks at your trajectory and your longevity in the business?

CAINE: Well, I think the basic thing is you start off as a leading man and get the girl and lose the girl. It's all the same. It's always the same in every movie. But then when you get to a certain age, you start to change. And what the thing to do is to pick something absolutely different from the last time, and surprise people. So that's longevity comes from that, and he will be extraordinary at that, I'm telling you.

ZAHN: The film is an absolute delight. You have a great crossover audience for it.

OSMENT: Yes.

CAINE: Yes, very much so, because it's a family film. You say, well, we'll take the kids, and I say, no, you're going to enjoy it first. Let the kids take you.

ZAHN: Yes, lots to enjoy on a bunch different levels.

OSMENT: Yes.

CAINE: Yes.

OSMENT: So good to see the two of you together. Keep walking the red carpet together, and we'll be talking a lot.

CAINE: Thank you.

(CROSSTALK)

ZAHN: Good luck to both of you.

CAINE: Thanks very much.

OSMENT: Thanks.

OSMENT: And again, good of you to drop by.

When we come back, an update a Hurricane Isabel bearing down on North Carolina and Virginia at this our. We'll be right back.

(COMMERCIAL BREAK)

ZAHN: Before we go tonight, we wanted to bring you an update on Hurricane Isabel. The fringes of the storm have reached the coast, as you can see in this live picture from Virginia Beach this evening. Tropical storm force winds are likely along the North Carolina coast by midnight. The eye of the storm is expected to make land fall near Cape Lookout, North Carolina around midday tomorrow. Forecasters say it may still be packing hurricane strength winds as it passes over Richmond, Virginia and Washington. That's the latest we got on Hurricane Isabel at this hour.

Thank for being with us tonight. We hope stay tuned to CNN. Tomorrow on this program, Colin Powell's right hand man, Deputy Secretary of State Richard Armitage. Thanks again for join us tonight. Good night.

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