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Interview With Rhode Island Senator Jack Reed; Trump Foundation Dissolving; Judge Blasts Michael Flynn, Delays Sentencing; Trump Foundation Agrees to Dissolve Amid Ongoing Lawsuit; Putin Vows to Deploy New Missiles if Trump Withdraws from Key Nuclear Weapons Treaty. Aired 6-7p ET

Aired December 18, 2018 - 18:00   ET

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

[18:00:03]

WOLF BLITZER, CNN ANCHOR: Without a foundation. The president suffers a big legal blow, as his charitable foundation is forced to dissolve in the midst of a lawsuit. New York's attorney general arguing that the Trumps used the organization for personal and political gain.

And border wall borrowing. The White House suggests federal agencies may help foot the bill for the president's wall, reversing course in a funding battle, as the clock ticks towards a possible government shutdown.

Did the president blink?

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

ANNOUNCER: This is CNN breaking news.

BLITZER: We're following breaking news on the stunning turn of events at Michael Flynn's sentencing hear today, the judge offering a scathing rebuke of the fired national security adviser, venting his disgust and his disdain about Flynn's admitted lies, even briefly suggesting they may be treasonous.

Flynn's team agreed to a delay in his sentencing after the judge suggested he might not go along with the special counsel's recommendation for little or no jail time.

Tonight, the man who chanted "Lock her up" at the Republican National Convention may have narrowly escaped being locked up himself.

This hour, I will talk to Senate Intelligence Committee member Jack Reed. And our correspondents and analysts are also standing by.

First, let's go to our justice correspondent, Jessica Schneider.

Jessica, this was a jaw-dropping hearing and it ended with a cliffhanger. JESSICA SCHNEIDER, CNN CORRESPONDENT: A cliffhanger indeed, Wolf. No

sentencing agency, as we expected. Instead, it was nearly two hours of tough talk from the federal judge, who stressed prison time was not off the table, even though that's what Flynn's lawyers and Mueller's team essentially agreed to in their sentencing memos.

It was a hearing that really went off the rails for Flynn's team, and now they have to wait to find out exactly what Flynn's fate will be.

(BEGIN VIDEOTAPE)

SCHNEIDER (voice-over): Tonight, Michael Flynn's sentencing is on hold after a dramatic two-hour rebuke from the judge, who hinted Flynn could end up getting prison time for lying to the FBI, federal Judge Emmet Sullivan scolding President Trump's former national security adviser, telling Flynn, "I am not hiding my disgust, my disdain for your criminal offense."

The judge even raised the question of treason, asking the special counsel's team twice if Flynn's conduct rises to the level of treasonous activity. Judge Sullivan also admonished Flynn for his work with the Turkish government, saying: "Arguably you sold your country out."

The judge later walked back both rebukes saying, he wasn't suggesting Flynn committed treason and acknowledged that Flynn's lobbying for Turkey did not go on while he worked at the White House. The judge focused his real frustration and confusion on the circumstances surrounding Flynn's guilty plea, asking why Flynn admitted guilt even though his lawyers accuse the FBI of tricking Flynn into lying about his contacts with the former Russian Ambassador Sergey Kislyak during that January 2017 interview at the House.

The sentencing memo where Flynn's lawyers criticized the FBI may have been a major miscalculation and seemed to offend the judge, who said: "I cannot recall any incident where the court has ever accepted the plea of someone who maintained he was not guilty."

Flynn finally admitted he was aware lying to the FBI was a crime when he was interviewed in January 2017, and his lawyer responded no when the judge asked Flynn if he believed he was entrapped by the FBI. Judge Sullivan still gave Flynn several chances to rethink his guilty plea, but Flynn repeatedly told the judge he wanted to proceed.

The judge asked, "Because you're guilty of this offense?" Flynn answered, "Yes, Your Honor."

The judge told Flynn he should consider delaying sentencing until he has finished cooperating, saying, "The more you assist the government, the more you arguably help yourself at the time of sentencing."

Flynn has already met with Mueller's team 19 times, but indicated in court he plans to continue providing information.

(END VIDEOTAPE) SCHNEIDER: So, the question is, when will Michael Flynn's sentencing actually happen? Well, that is still undetermined, but it likely will be sometime next year after the two sides file status reports. Those are due by March 13, and after that, the sides may agree to proceed to a second try at Flynn's sentencing.

So, Wolf, we will wait, and to be continued.

BLITZER: Yes. He has got to wait a few more months to see if he's going to jail or not going to jail. He's 59 years old. Thanks very much for that.

Let's get some more on all of this.

We are joined by our chief national security correspondent, Jim Sciutto, who has been following the Flynn case very, very closely.

Jim, it seems the judge was clearly going to give Flynn some jail time.

JIM SCIUTTO, CNN CHIEF NATIONAL SECURITY CORRESPONDENT: Well, it is a remarkable turn of events.

Just in the last week, only a number of days ago, Flynn's lawyers were suggesting, as the president has repeatedly charged, that Flynn was entrapped by the FBI into telling lies.

[18:05:05]

Then, yesterday, we see the accounts of those interviews, where it is clear that Flynn repeatedly lied, willfully, though he was given chances by FBI agents to correct his story. Today, the judge calling him before the bench and making him repeat multiple times, no, I was not entrapped, yes, I take responsibility for this crime.

And then the judge -- then the lawyers, rather, for Flynn, sensing that, as the judge was scolding him, in effect, with these phrases that Jessica talked about, you sold your country out, I am not hiding my disgust, this is a very serious offense, judging that maybe the predictions that there was no jail time coming might be wrong, and that it would be best for them to delay, to punt, in effect, cooperate more and hope for a lesser sentence at a later date, a remarkable turn, Wolf, in just a few days.

BLITZER: I suspect the judge was doing him a favor, saying you better delay. Otherwise, you might be going to jail right now.

What is behind, do you think, Jim, this judge's stunning rebuke after the prosecutors, the special counsel's team, actually asked the judge for little or no jail time for Flynn?

SCIUTTO: Well, listen, the prosecutors clearly making clear to the judge and to the public that Flynn has been cooperating on a number of cases.

The judge, however, not impressed possibly with the public charges, not just from outside, but from Flynn's own legal team, that he ended up in this case, not because he made a mistake, a miscalculation, broke the law, but that the FBI did something wrong.

And we got a taste of that yesterday when we saw those records of those FBI interviews. Remember, there was some talk as the judge allowed them to be released that, well, maybe the judge is going to show that, well, there is some evidence that Flynn was wrong-footed in those FBI interviews when, in fact, those records show the opposite, that he was given multiple opportunities.

Listen, judges have a lot of power in their courtroom. And though, as we have noted, this judge, appointed by Reagan, Bush, later Clinton to various posts, he was not impressed with those excuses and he considered these lies consequential and deserving, it appeared, of possible jail time.

BLITZER: Yes, very, very surprising indeed.

How surprised do you think all of this was to Flynn and his family who were in the courtroom?

SCIUTTO: Well, judging by our colleagues who were in the courtroom, their demeanor changed dramatically.

At the start of the proceedings, they were smiling, his mother there, other relatives, Flynn greeting them with a smile when he entered the courtroom. By the end of it, after this upbraiding by the judge, their heads were down, their heads shaking at times, clearly reading the messages from the judge that their expectations might have been wrong, maybe they got bad advice from their lawyers, their lawyers making a last-minute correction there.

But certainly, in the courtroom, based on our colleagues who were there, they entered with high hopes, and they left with disappointment and perhaps some surprise.

BLITZER: What do we know about what else Flynn needs to cooperate on, Jim, and will it be enough for this federal judge?

SCIUTTO: Well, the judge made clear, the more you cooperate, the more advantage you will have when the sentencing actually happens, this now a number of weeks away.

And that is on two lines of inquiry, one, this case about illegal foreign lobbying that two of Flynn's former partners have now been indicted for. Flynn has not, presumably because he has provided information in that investigation.

But, also, the special counsel, represented in the courtroom, made clear while his cooperation has been very helpful, it is possible he could continue to help. And that appears to be the strategy going forward, not without some encouragement from this judge, saying, cooperate going forward, and you may get a better sentence down the road.

BLITZER: Yes, he needs to be a perfect cooperator over the next three months in order to convince this judge that he's not going to go to jail.

Jim Sciutto, thank you very, very much.

We have more breaking news coming into THE SITUATION ROOM in the Mueller investigation.

I want to bring in our crime and justice reporter, Shimon Prokupecz.

Shimon, we just learned a little while ago details about a mystery case involving the special counsel. Presumably, this is a big deal for Robert Mueller.

SHIMON PROKUPECZ, CNN CRIME AND JUSTICE CORRESPONDENT: Yes, it is tremendous here, because they have been trying to get this information from this company.

What we have learned, based on what has just been filed, is that this is a foreign company, a company outside of the U.S., that is trying to argue they do not need to release, they shouldn't be forced to release this information pursuant to the subpoena that the Mueller team has given them because they're protected by their own country's laws.

There are regulation issues, and they have been fighting this, in secret, of course, for quite some time. And now this is a big win for the Mueller team. Clearly, this is information that is important to the investigation. They have been in court fighting this now for quite some time.

[18:10:00]

And it seems as though, unless this company appeals, goes higher to the Supreme Court, that are going to be forced the release this information.

BLITZER: Yes, this court of appeals decision says it is a corporation that's owned by a foreign country, Country A. The corporation isn't identified, but presumably this corporation has activities going on here in the United States.

PROKUPECZ: That's right.

And whatever is going on, they're trying to obviously not release that information. And this company, when you think about the money that it's costing them, the amount of money it's costing them to appeal this is tremendous.

(CROSSTALK)

BLITZER: Because they're paying a penalty, too.

PROKUPECZ: They're also paying a penalty. They have been held in contempt, and so they're paying a penalty on that. They're paying all of these legal fees.

So whatever company this is, clearly, they have a lot of money and they're putting a lot of effort into keeping whatever information the Mueller team wants secret.

BLITZER: They went to extraordinary lengths on Friday to keep reporters and everyone else off this floor, so no one would know what was going on. They didn't want anyone to see who was walking in, walking out.

Are there hints, though, the name of the country, the foreign country involved?

PROKUPECZ: None, nothing. And they did. They went to extreme ways to keep things secret. They closed off an entire floor of the courthouse. They wouldn't let reporters on to the floor.

Whatever is going on here is very sensitive to the company and probably very sensitive to the Mueller investigation. There are no hints, other than that it is Country A.

But in talking to some folks, you see this kind of activity or this kind of fight from companies when it is usually financial institutions outside of the U.S. who are fighting money-laundering investigations. So it could be -- and this is pure speculation here -- just on what we have read in these documents, this could be a financial institution.

Obviously, the Mueller team, the special counsel has been looking at money that flowed into the transition, into the time that between the president -- into the inauguration, I should say. This could be what this is about, but it is pure speculation. It could be a financial institution that Mueller is seeking information from.

BLITZER: Yes, I suspect a lot of reporters, a lot of people are trying to figure out the name of the corporation and the country involved. I suspect we will figure that out fairly soon.

All right, thanks very much, Shimon.

We are going to have more on this story coming up.

But, right now, I want to turn to the other breaking news we're following on the Michael Flynn hearing and the reaction coming in from the White House, the president's spokeswoman defending Mr. Trump for his continued defense of Michael Flynn.

Let's get to our chief White House correspondent, Jim Acosta.

Jim, there was a rare White House press briefing today shortly after Flynn's hearing.

JIM ACOSTA, CNN CHIEF WHITE HOUSE CORRESPONDENT: That's right, Wolf.

And the White House at that briefing was continuing to claim that Michael Flynn was somehow ambushed by the FBI, resulting in his lying to the federal investigators. But that flies in the face of what we heard earlier and what Flynn said in court today.

Still, that detachment from reality was on full display here at the White House, as the press secretary held a rare briefing with reporters, the first one we have seen in weeks.

(BEGIN VIDEOTAPE)

ACOSTA (voice-over): Proving that the White House Briefing Room is no courtroom and that when it comes to the truth just about anything goes, Press Secretary Sarah Sanders all but accused the FBI of bullying former National Security Adviser Michael Flynn into lying to federal investigators.

SARAH HUCKABEE SANDERS, WHITE HOUSE PRESS SECRETARY: The FBI broke standard protocol in the way that they came in and ambushed General Flynn, and in the way that they questioned him, and in the way that they encouraged him not to have White House Counsel's Office present.

ACOSTA: Sanders made that claim, despite the fact Flynn just admitted in court that he knew lying to the FBI was a crime when he made false statements to investigators about his contacts with the Russians.

What's more, Flynn's legal team said he wasn't entrapped. But the press secretary was just echoing President Trump, who tweeted earlier in the day: "Good luck today in court to General Michael Flynn. Will be interesting to see what he has to stay, despite tremendous pressure being put on him about Russian collusion."

It is an odd line of attack for the White House, as the president once said he fired Flynn for misleading Vice President Pence about those contacts with the Russians.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: Mike Flynn is a fine person, and I asked for his resignation. He respectfully gave it. He is a man who there was a certain amount of information given to Vice President Pence, who is with us today, and I was not happy with the way that information was given.

ACOSTA: When pressed, Sanders tried to put some separation between Flynn's lies and whether the president colluded with the Russians.

HUCKABEE SANDERS: Maybe he did do those things, but that doesn't have anything to do with the president directly.

ACOSTA: Sanders also defended the president's recent attacks on his former personal attorney, Michael Cohen, as a rat for turning against Mr. Trump.

HUCKABEE SANDERS: We know Michael Cohen to be a liar on a number of fronts, and the president's opinion is extremely clear on that front.

ACOSTA: The press secretary later insisted the term rat was more than fair.

QUESTION: Using terms like rat and things like that to talk about people who are cooperating witnesses with the FBI, does he not have...

HUCKABEE SANDERS: For people who were dishonest and lying. I mean, seems like a pretty appropriate term.

QUESTION: ... does he not have a broader responsibility to...

[18:15:01]

ACOSTA: But the president and his team have hardly been honest with the public, like when Mr. Trump falsely said he didn't know about hush money payments to his alleged mistresses.

QUESTION: Did you know about the $130,000 payment to Stormy Daniels?

TRUMP: No. Well, you have to ask Michael Cohen. Michael is my -- an attorney, and you have to ask Michael Cohen.

ACOSTA: As the White House is back on its heels on the Russia investigation, aides to the president are signaling they want to avoid a government shutdown just before the holidays, hinting Mr. Trump won't demand that Congress pass billions of dollars in new spending for a border wall.

Sanders made the questionable claim that the administration would somehow find the money without charging the taxpayers.

HUCKABEE SANDERS: We're not asking American taxpayers for that. The president has asked every one of his Cabinet secretaries to look for funding that can be used to protect our borders.

ACOSTA: The president didn't close the door on a deal.

TRUMP: We will see what happens. Too early -- too early to say. Sorry. Thank you. We need border security. Thank you very much.

(END VIDEOTAPE)

ACOSTA: Now, there was a significant development out of the White House on another front, and that is the administration did move forward with a ban on bump stocks.

Those are the devices that allow semiautomatic weapons to fire more rapidly and were used in the Las Vegas massacre last year.

As for the administration's plans to find funding for the wall on the border with Mexico with money that has already been spent at federal agencies, it should be noted that would still mean taxpayers would be paying for something that the president said Mexico would take care of during the 2016 campaign.

The press secretary said today the taxpayers wouldn't pay for the wall. But that's not true. It is clear at this point that is exactly what the White House plan is, to have the taxpayers pay for the wall -- Wolf.

BLITZER: All right, Jim Acosta at the White House, thank you very much.

Joining us now, Senator Jack Reed of Rhode Island. He is a Democrat, serves on both the Intelligence and Armed Services Committees.

Senator, thanks so much for joining us.

SEN. JACK REED (D), RHODE ISLAND: Thanks, Wolf.

BLITZER: Now, we don't know the name of the country. We don't know the name of the corporation. I assume we will know fairly soon.

But the fact that this company, this corporation, this unknown foreign country is going to these extraordinary lengths so they don't have to comply with a Mueller grand jury request, a subpoena for information, and that they're fighting this in rather mysterious ways, what does it say to you?

REED: Well, it suggests that they have something to hide. They're using every opportunity, appealing decisions and using all of their legal rights, which they're entitled to, but companies that have nothing to fear from disclosure don't go to these extremes.

BLITZER: What does it tell you about the Mueller investigation right now that they're going to this extreme to try to get this information, to get this company, this corporation to comply with this grand jury subpoena, and they're also dealing with all of these other issues, including what happened to Michael Flynn today?

REED: Well, Director Mueller is following the facts, and that's his job. He is an extraordinarily good prosecutor.

And when obvious or at least suspect violations of the law occur, he will pursue those. And he is pursuing this. He is at this point just trying to gather information from the company.

BLITZER: Because it looks to me like, this is a thing -- some people thought it was going to be over with by the end of the year, but it looks like it could stretch on.

REED: It keeps going and going, and I think that's because, when someone like Mr. Cohen, not directly with Director Mueller, but in the Southern District of New York, makes his plea, pleads guilty to crimes and suggests, indeed, that the president might be involved, that expands it.

When the owners of "The National Enquirer" seem to suggest too that they were involved, that expands it. So, this is an investigation where it has to be pursued until all of the -- all possible crimes are investigated.

BLITZER: The White House today, the press secretary, Sarah Sanders, said that Flynn's activities, the former national security adviser, what he said, the lies and all of that, had nothing to do with President Trump at all. What's your reaction to that?

REED: Well, he was the national security adviser when he made those misstatements about his contacts with the former Russian ambassador. In fact, as the president indicated previously on the -- he in fact did not candidly tell the truth to Vice President Pence.

So there was an involvement here. Whether it was in any way directed, inspired or encouraged by anyone else in the White House, that's still probably being determined or investigated by Mueller.

BLITZER: Your committee, the Intelligence Committee -- you're an ex officio member of the Intelligence Committee -- they released two stunning reports yesterday. We have gone through them. I'm sure you have gone through them, talking about Russian's penetration, involvement in the 2016 presidential election.

The president hasn't responded specifically to those two reports that the Intelligence Committee released, but this morning he did tweet this, and I will read part of the quote.

"Facebook, Twitter and Google are so biased toward the Dems, it is ridiculous."

Does that line up with what your committee found in these two reports?

REED: No, it does not.

[18:20:00]

It looks at Russian influence operations in the United States during the 2016 election, and found that there was a consistent pattern. They favored President Trump.

They would try to increase literally the turnout of Trump supporters and decrease the turnout of potential Clinton supporters. They did this very -- very sophisticated techniques, looking at the algorithms, how they could get them to work for the Russians.

And their consistent theme was to increase the president's vote and decrease Secretary Clinton's vote.

BLITZER: You know, it was another huge embarrassment to the president of the United States today when he was forced to shut down his charity, the Trump Foundation.

The New York attorney general writes this. She says: "Our petition detailed a shocking pattern of illegality involving the Trump Foundation, including unlawful coordination with the Trump presidential campaign, repeated and willful self-dealing, and much more."

This amounted to the Trump Foundation functioning as little more than a checkbook to serve Mr. Trump's business and political interests.

What is your reaction to that?

REED: First, it has been uncontradicted by the president or anyone else. Closing down the foundation suggests there's a lot of truth there, and it is a stunning attack really and rebuke of the president.

If he was using a charitable foundation for his self-interests, for his political interests, that is contrary to not only the law, but the spirit of what we'd like to think charitable foundations do. They help people. BLITZER: Yes, it reminds me when he was forced to shut down Trump University. That was an embarrassment as well -- now the Trump charity, the foundation, shut down.

Senator, thanks so much for joining us.

REED: Thanks, Wolf.

BLITZER: Jack Reed of Rhode Island.

There's more breaking news just ahead. Will a judge ignore Robert Mueller's recommendation and send former National Security Adviser Michael Flynn to jail. And if so, for how long?

Plus, the new mystery in the Mueller investigation emerging today: What is the company owned by a foreign government, and why is it now being ordered to comply with the special counsel's grand jury subpoena?

(COMMERCIAL BREAK)

[18:26:35]

BLITZER: We're following breaking news on the delay in Michael Flynn's sentencing after a federal judge unloaded, declaring his disdain for the fired national security adviser because he lied to the FBI, knowing that it was a crime.

Also breaking, a win for the special counsel, Robert Mueller, tonight in a case shrouded with a lot of mystery and secrecy. A court has ruled that an unnamed company owned by a foreign country must comply with a grand jury subpoena issued in the Russia investigation.

Let's bring in our analysts to assess.

Michael Zeldin, we know this corporation, unnamed, owned by an unnamed foreign government, the entire floor of a federal building was shut off, so that no one would see lawyers or others walking in. How does it fit into the puzzle, the enormity of the mystery right now?

MICHAEL ZELDIN, CNN LEGAL ANALYST: Well, so we have a situation where they're seeking to obtain records from a private corporation owned by a foreign national -- foreign state that is not subject to an extradition treaty with us or a mutual assistance treaty.

That implies Russia. It is one of the future countries that doesn't have that, that has touch points with the Mueller investigation. Also, it seems...

(CROSSTALK)

BLITZER: We don't know it is Russia. You're just...

(CROSSTALK)

ZELDIN: No, no, no, I'm just -- from the reading of it. It also seems as if the nature of the documents being sought are

financial records. So one could speculate this is a Russian-owned financial institution that may have relevant financial data for the Mueller investigation, and it is under the Foreign Sovereign Immunities Act, which prevents these sort of suits without exception.

So it is a big deal to try and breach these sovereign immunities. They seem to have done it. And they will get their records, and I think we will learn a lot from it.

BLITZER: We will see if they do, because the district court sided with Mueller. Now the court of appeals sided with Mueller. It is a big win for the special counsel.

PHILIP MUDD, CNN COUNTERTERRORISM ANALYST: It is a great win.

And I look at this. I don't bet on football, but I would like to see the odds on this one. As a national security guy, I'm with Michael. You are looking at this and looking at sort of the crumbs and where they go.

These cases that Mueller has brought time and again involve money and they involve illegal interactions with Russian companies, including, as we know, Russian companies that were involved in the American election.

So I look at this, put two and two together, and say Mueller is trying to get information on companies, for example, that might have been trying to buy space in the social media area during the election or that had interactions with people who were under investigation from Mueller. A big win for him.

BLITZER: And what it does underscore, Sabrina, is how much we still don't know about what is going on behind the scenes in the Mueller investigation.

SABRINA SIDDIQUI, "THE GUARDIAN": Right. Right.

Now we're dealing with an unnamed company owned by an unnamed foreign country. There is no specific reference to the special counsel's office, nor is there really any reference to who is prosecuting this case at all.

You know, as both Michael and Phil point out, there are some signs that could point to Russia, but investigators have sort of been looking at this broader web of foreign money that was targeted at both the Trump campaign, as well as the transition and the presidency in an effort to influence both him as a candidate and then his administration, not just by Russia, but by as many as half-a-dozen countries.

So there are a lot of possibilities and a lot that we simply don't know at this particular point in time, but perhaps we will learn in the coming weeks and months.

BLITZER: And, Jamie, all this unfolding on this extraordinary day we thought Michael Flynn was going to get his sentence, the prosecution, the special counsel, recommending little or no jail time at all for the president's former national security adviser.

But it exploded in that room today. And the judge in the end delayed the sentencing, at least until March.

[18:30:14] JAMIE GANGEL, CNN SPECIAL CORRESPONDENT: Right. Drama upon -- upon drama. What we saw today, this afternoon, we know that this judge is very tough and he has a history like that.

But he really gave, I think, Michael Flynn a hall pass today. But it took them a couple of tries to get there. He kept saying, "I think you might want to wait. You might want to delay sentencing." Finally they seemed to get the message. They came back.

But there seems to be no question, if they had gone today, he was going to give him jail time, which was not what the prosecution had suggested.

SABRINA SIDDIQUI, "THE GUARDIAN: I also think that one of the points of frustration for the judge was that Flynn's attorneys had argued leading up to this that part of why he lied to investigators is because he was not warned by the FBI that that is a crime. And I don't think the judge, certainly special counsel wasn't buying it nor do I think the judge is, because Flynn is a retired three-star general. He's a former director of the DIA.

It is not plausible he would be unaware that lying to investigators is, in fact, a crime. And it seems the judge did not appreciate his team's effort to downplay the severity of what he had done.

BLITZER: Let me bring in Jeffrey Toobin to weigh in on this. Also, I want you to weigh in on this other matter, this mystery surrounding the grand jury subpoena that an unnamed company -- corporation owned by an unnamed foreign government, foreign country is now being forced to comply, Jeffrey Toobin.

JEFFREY TOOBIN, CNN CHIEF LEGAL ANALYST: Well, you know, in terms of this -- this subpoena issue, you know, I went to a very fancy law school, and one of the things I learned there is it's better to win cases than lose them. And Mueller won this case.

Now, I don't know who the case was against. I don't know which company it was, but the fact is, he's going to get these documents; and that's -- that's a good thing.

You know, as for the Flynn case, you know, I think, you know, the fact that we cover these cases every day and we sort of become inured to the facts and the circumstances, you know, it's sometimes good to be reminded from an outsider like Judge Sullivan in this case, this is outrageous. This is a national security adviser to the president who looked the FBI agents in the eye in the White House and lied to them.

You know, it is important, I think, sometimes in the criminal justice system to maintain an ability to be outraged. And Judge Sullivan clearly has preserved that ability. Now, I don't think, at the end of the day, Flynn is going to wind up

going to prison, but I think it's a useful reminder that, you know, some of the stories we cover all the time, we actually sometimes downplay, because we've heard them a lot. Judge Sullivan hasn't heard them a lot, and he was pretty outraged.

BLITZER: You know, and Michael Zeldin, you've covered -- you've worked in the federal government. You understand these proceedings. It is pretty extraordinary -- not completely out of the question -- for a federal judge to react the way he did, given the recommendations of the special counsel, the federal prosecutors, that this guy has done substantial cooperation, he's been a great help, he's testified under oath for hours and hours and hours, and he deserves little or no jail time.

MICHAEL ZELDIN, CNN LEGAL ANALYST: Well, that's right. And I think what may have set this judge off was that, in the Flynn sentencing memorandum, he said, "While we accept what the federal prosecutors have said, we want to give you some additional information," and then he went into this "I was set up by the FBI," you know, trope. And I think the judge had, you know, saying to him essentially, "Are you accepting responsibility or are you not accepting responsibility? If you're not accepting responsibility and you want to withdraw your plea, here is the time.

And I think that whole give-and-take set in motion what led to the ultimate dismissal of the sentencing and pushing it off to the future.

PHIL MUDD, CNN COUNTERTERRORISM ANALYST: I mean did you see what just happened over the past week? We have the lawyers for Flynn, who has repeatedly agreed, willingly, that he lied, saying, "Oh, maybe he was bullied."

Then we finally get the transcript where, about ten times in there, the feds say, "Did you really do this?"

"No."

"Did you really --"

So he needs a lawyer in the room to say, "Hey, by the way, when the FBI asks you a question, like when the nuns asked me a question in the third grade, the right answer is maybe the truth." That's why he needs a lawyer in the room? They gave him a dozen chances, and every time he said no.

BLITZER: Jeffrey, was it a major blunder on the part of Flynn's lawyers to bring up that whole issue that maybe he was tricked, he didn't fully understand that you don't lie to the FBI. He didn't fully understand that he didn't get a Miranda warning, if you will?

TOOBIN: I think it obviously was a mistake, because it almost got him locked up. I mean it looks like, you know, he will not -- he will not be locked up.

[18:35:05] But, you know, one of the rules -- particularly because of the way the sentencing guidelines, which came in in the 1980s, you know, they are very specific about certain acts that a defendant must do to get credit. And one of them is called acceptance of responsibility.

And if you accept responsibility, you get a certain amount of credit for -- and likely a lower sentence, but you have to really accept responsibility. You can't say, "Well, you know, I sort of accept responsibility but I was tricked."

You know, this -- it reminds me of this whole discussion that Rudy Giuliani has been leading about, you know, what if there's a perjury trap? I don't even know what a perjury trap is. You just tell the truth, and things work out fine if you talk to the FBI.

And this -- and you know, it's the same issue with Flynn. It's like, "Well, the FBI agents, they didn't give him the Miranda warning." Just tell them the truth. Then everything would have been fine, but instead, he's a convicted felon.

BLITZER: And the president, you know, it's pretty extraordinary. He calls Michael Cohen, his former lawyer and fixer, a rat, but he has only praise for Michael Flynn, who basically did the same thing: lie under oath, lie before -- to the FBI and is about to go to jail.

GANGEL: And was our national security adviser. I mean, you have the "Goodfellas" on the one hand. And then you heard Sarah Sanders come out today and say that the president's comments were, quote, "perfectly acceptable" to say.

I have to wonder, is there still a dangling of a pardon out there for Flynn. Is that why he's playing nice with him right now? But there is no -- Donald Trump has flipped and flopped back and forth on these things over and over again.

BLITZER: Sabrina, I just want to read that first sentence in Trump's tweet today: "Good luck today in court to General Michael Flynn."

SIDDIQUI: Well, the president continued to defend Michael Flynn even after he was fired as national security adviser, and there have been these conspiracy theories on the right that Flynn is sort of a martyr and that he was, in fact, entrapped when there is, of course, nothing to substantiate that claim.

It's interesting that the president is still taking his side, even though he's now met with prosecutors 19 times and been cooperating for more than a year. Perhaps it's because we don't yet know what information he has, in fact, shared with the special counsel. And perhaps as we know more about that substantial assistance that he has provided to these ongoing investigations that Mueller has pointed to, the president's tune may well change.

GANGEL: And let's not forget, one of the reasons the judge said today, "Would you like to wait for sentencing until March" is there's more cooperating to come. So what else is Michael Flynn going to cooperate, and Donald Trump has to be worried about every one of those meetings. BLITZER: If he wants to avoid going to jail, he's got to cooperate

enormously over these next three months.

Everybody, stick around. There's more breaking news we're following on the Russia investigation and a dramatic new legal defeat for President Trump. His charitable foundation now accused of shocking, shocking illegality and that charity, that Trump Foundation is now crumbling.

(COMMERCIAL BREAK)

[18:43:04] BLITZER: nWe're back with our analysts following breaking news on a major legal defeat for President Trump. His foundation forced to shut down in the midst of a lawsuit accusing the charity of financial misconduct. The New York state attorney general suggesting the foundation is little more than a checkbook for the president's personal and political interests.

Let's get the latest details from our national political correspondent, M.J. Lee. M.J., what's the latest?

M.J. LEE, CNN NATIONAL POLITICAL CORRESPONDENT: Well, Wolf, President Trump has agreed to shut down the Trump Foundation. This is his family's charitable organization, and this news coming in the middle of an ongoing lawsuit against the foundation from New York state A.G.'s office. They allege that, rather than being a real charity, as you said, the Trump Foundation has been more of a checkbook, serving President Trump's own interests.

Here's just a couple of examples from the lawsuit of how the organization appears to have used its donations to benefit Trump or his business.

First off, it says Trump bought a six-foot portrait of himself -- there's a photo of it -- at a charity auction using charity money. The lawsuit also says $100,000 of charity money was used to settle legal claims against Trump's Mar-a-Lago resort in Florida.

And similarly, the lawsuit also says another $158,000 of charity money was used to settle legal claims against the Trump National Golf Club in 2008. And this incident allegedly involved a hole-in-one tournament.

Now, let me also read a part of a statement from New York Attorney General Barbara Underwood. She said, "Our petition detailed a shocking pattern of illegality involving the Trump Foundation, including unlawful coordination with the Trump presidential campaign, repeated and willful self-dealing and much more. This amounted to the Trump Foundation functioning as little more than a checkbook to serve Mr. Trump's business and political interests."

Now, the A.G.'s office says it will review which charities will receive the remainder of the Trump Foundation's assets -- Wolf.

BLITZER: M.J., the lawsuit against the foundation will continue despite the charity, the Trump charity now shutting down. So what comes next?

[18:45:02]

LEE: That's right. You know, even with the Trump Foundation shutting down, this lawsuit is still ongoing. The New York AG's office would like to see two other things happen.

First, they want $2.8 million in restitution plus additional penalties. And second, they also want to ban Trump from serving as a director or trustee of a New York nonprofit for ten years. And similarly, they also want other board members of the organization, the Trump children, to also be banned for serving on a nonprofit for one year.

I should also note, White House spokeswoman Sarah Sanders would not comment on the Trump Foundation news at the press briefing earlier today, but a lawyer for the Trump Foundation called the AG's announcement misleading, saying the foundation has actually been planning to dissolve since Trump's election in 2016. The lawyer also said the lawsuit was politically motivated -- Wolf.

BLITZER: MJ, thanks very much.

Let's go back to our analysts.

Michael Zeldin, how significant is this?

ZELDIN: Well, it is significant inasmuch as it says there is a pattern of illegal activity that the Trump Organization has engaged in. That pattern of illegal activity we see again in the lawsuits that involve the inauguration, domestic and foreign contributions to the inauguration for the Trump benefit, and also for the emoluments case where they are saying that they're profiting off of their time in office.

So, you see a pattern here of lawsuits, some by the government, some private sector, which says this essentially is a corrupt group of people running their operation for their own financial benefit.

BLITZER: You know, Jeffrey --

JEFFREY TOOBIN, CNN CHIEF LEGAL ANALYST: I have a somewhat --

BLITZER: Go ahead, Jeffrey.

TOOBIN: I have a somewhat different view. I think it is significant because the evidence makes you want to puke.

I mean, this is -- I mean, think about this. This is a charity. You know, he gets tax deductions for putting money into this charity. This is like giving money to the Red Cross or the American Cancer Society which give money to solve diseases.

And what do they spend their money on? Buying a portrait of Donald Trump? I mean, is there clearer evidence that the Trump enterprise is just a grift, that this is just a way of preserving and maintaining and making money for the Trump Organization?

I mean, this is a charity. I mean, it is one thing to -- you know, to make money in a business enterprise. I mean, that's what people are supposed to do. But the whole point of a charity is to give money to do good works, and this is the Trump idea of good works.

JAMIE GANGEL, CNN SPECIAL CORRESPONDENT: Jeffrey is not only correct, but I would take it a step further. I think this is a nightmare for Donald Trump, because what has he always said? Don't get into my business. This is the red line -- the Trump Foundation, next the Trump Organization.

Let's remember -- remember Omarosa when she left the White House? We found out she had been tape recording all of her conversations. How does this relate?

I would say a word to the wise. Live every day as if Omarosa is recording you. We know that Michael Cohen has one recording that has been used. I suspect there are others. When you get into the Trump Organization, Allen Weisselberg, the CFO, was given immunity in the Michael Cohen, the Stormy Daniels' case. He is supposed to have the keys to the kingdom.

BLITZER: Yes, and the attorney general of New York state implicating not only Donald Trump but his children as well. You can only imagine how the president is reacting to that.

PHIL MUDD, CNN COUNTERTERRORISM ANALYST: And I think this gives us a clue about not only this case but the Flynn case, the way the president has dealt with both so differently. What does Flynn not know about? Money.

What is the president concerned about, whether it is Paul Manafort, whether it is Cohen, whether it is this case? Dirty money. I think the president is so concerned about Michael Cohen simply because -- and it is not about Stormy Daniels. It is because he knows about family money including the kids going back years.

Also, when you get the FBI raiding his offices -- that is Michael Cohen's offices, you get a lot of documents about dirty money. I think that's why he's worried about Cohen.

BLITZER: I suspect it is only just beginning, but go ahead.

SABRINA SIDDIQUI, POLITICAL REPORTER, THE GUARDIAN: Yes, I want to point out that the portrait of Trump, the charity doled out $20,000 to purchase it and there's no question that he used the charity to bolster his own interest. The largest donation according to "The Washington Post" was more than a quarter of a million dollars towards the Central Park conservancy in 1989 and that was, in fact, paid to restore a fountain outside of the Trump Plaza Hotel.

So, there's never been any semblance of actual charity involved with the Trump Foundation. I think there's a concession though within the settlement by Trump himself that there was merit to this case, which he once decried as a partisan witch hunt as well. [18:50:05] BLITZER: The president is now forced to shut down his

foundation because of lawsuits. Earlier, he shut down Trump University because of lawsuits. I can only imagine how he feels about all that.

Everybody, stick around. There's more news we're following.

Russia's Vladimir Putin is issuing a new threat to the United States. He's promising to build and deploy new missiles if President Trump goes ahead and withdraws from a key nuclear treaty. The Kremlin also is disputing new reports conducted for the U.S. Senate on Russia's election interference.

Our senior international correspondent Fred Pleitgen is joining us live from Moscow right now.

Fred, despite Moscow's efforts to help Mr. Trump during the elections, tensions with Russia, they seem at least for now, they continue to rise.

FREDERIK PLEITGEN, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, you're absolutely right and the Kremlin absolutely annoyed by the fact that these reports of the Senate came out, of course, outlining the trolling activity both before the 2016 election and afterwards as well. At first, the Kremlin didn't want to comment on them at all. Today, we finally did get a comment from them.

Here's what they said.

(BEGIN VIDEOTAPE)

PLEITGEN (voice-over): Tonight, an annoyed response from the Kremlin to the Senate report outlining Russian online troll activity against the U.S. both before and after the 2016 U.S. presidential election.

Vladimir Putin spokesman denying Moscow's involvement

DMITRY PESKOV, KREMLIN SPOKESMAN (through translator): Somebody is very critical of U.S. social issues and we are blamed for it? What does Russia have to do with this? It's not described. I can only repeat that we once again disagree with this. We think these are totally baseless statements.

PLEITGEN: Moscow also engaging in tough military talk against the U.S. In a year end meeting with his military leaders, Vladimir Putin saying Russia is moving fast to beat the U.S.'s missile defense systems.

VLADIMIR PUTIN, RUSSIAN PRESIDENT (through translator): It is necessary to quickly switch over to modern weapons that possess the enhanced capabilities of breaching the advanced missile shield defenses. Next on the agenda are the serial production and the delivery of the Avangard global range missiles to the troops.

PLEITGEN: Earlier this year, Russia announced the development of what it says is a hypersonic nuclear capable missile with a global range called Avangard. Putin's defense minister says widespread deployment will begin next year.

SERGEY SHOIGU, RUSSIAN DEFENSE MINISTER (through translator): In 2019, the ministry of defense is facing a number of defensive tasks, which need to be fulfilled. Regarding our strategic nuclear forces, we need to deploy 31 launchers with the intercontinental ballistic missiles Yars and Avangard.

PLEITGEN: Tensions between Moscow and Washington are increasing despite President Trump's stated goal of improving relations with Vladimir Putin. The U.S. saying it will pull out of the INF Treaty which bans medium range nuclear weapons, claiming Moscow is breaching the agreement.

Putin today threatening to deploy new weapons if America abandons the deal.

PUTIN (through translator): If that, which they keep trying to frighten us with, happens, well, we will have to respond accordingly. And as you understand, it won't be too big of a deal to do the appropriate research and development and put them on the ground if necessary.

PLEITGEN: As the Kremlin continues to lose faith in President Trump's ability to salvage relations between Russia and the U.S., Moscow is beefing up its forces, even announcing they will hold strategic nuclear forces drills next year.

(END VIDEOTAEP)

PLEITGEN: And some of the other forces, Wolf, that the Russians are going to beef up is their air defense forces in the arctic. That's one of the other things they announced today, part of a massive program, upgrading airfields, building new military bases in the Arctic, an area where the U.S. is really lagging behind.

BLITZER: Very significant developments indeed.

All right. Fred Pleitgen in Moscow, thanks for that report.

Much more news right after this.

(COMMERCIAL BREAK)

BLITZER: Finally, tonight, we remember Penny Marshall, who was in a league of her own as the TV sitcom star-turned-successful TV director. She died last night of complications from diabetes.

(VIDEO CLIP PLAYS)

BLITZER: Penny Marshall shot to fame in the late 1970s playing brewery worker Laverne DeFazio in the hit TV series "Laverne and Shirley," a spinoff of "Happy Days" produced by her brother, Garry Marshall.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: Because we're not going to take no for an answer.

UNIDENTIFIED FEMALE: We did take no from one guy who sicced his dogs on us.

UNIDENTIFIED FEMALE: They were just little tiny poodles.

UNIDENTIFIED FEMALE: Poodles are mean, Shirley.

(END VIDEO CLIP)

BLITZER: Penny Marshall went on to direct major films in the 1980s and '90s including "Big" starring Tom Hanks with that project. She became the first woman to direct a movie grossing more than $100 million. She followed it up with the women's baseball movie, "A League of Their Own." Those are just some of the memorable films that are part of her legacy.

Penny Marshall was 75 years old, a truly great American woman. We will all miss her. May she rest in peace and may her memory be a blessing.

"ERIN BURNETT OUTFRONT" starts right now.