<Date: November 13, 2012>

<Time: 18:00>

<Tran: 111301cb.254>

<Type: Show>

<Head: Two Generals, A Socialite And Author, An FBI Agent, And A Tangled

Web That Is Growing By The Minute>

<Sect: News; Domestic>

<Byline: Bret Baier, Jennifer Griffin, Catherine Herridge, Wendell Goler,

Doug McKelway, Alicia Acuna, Dr. Marc Siegel>

<Spec: Budget; Cities; Congress; Economy; Elections; Government; Health and

Medicine; Military; Politics; Stock Markets; Taxes>

BRER BAIER, FOX NEWS ANCHOR: Two generals, a socialite and author, an FBI agent, and a tangled web that is growing by the minute. It's the sex scandal that's rocked Washington ahead of important hearings on Capitol Hill. This is SPECIAL REPORT.



BAIER: Good evening. I'm Bret Baier. It's a tale of two scandals, the affair that unwound the CIA career of General David Petraeus and the assassination of a U.S. ambassador and three others in Benghazi. The former is a story that is changing by the minute, while the latter is being seen in a new light ahead of Congressional hearings.

We have Fox team coverage tonight. Chief intelligence correspondent, Catherine Herridge, looks at the machinations on Capitol Hill and who knew what when. But first, national security correspondent, Jennifer Griffin, untangles all the complicated relationships here, and there are a lot of them. Good evening, Jennifer.

JENNIFER GRIFFIN, FOX NEWS NATIONAL SECURITY CORRESPONDENT: Good evening, Bret. In the military, they call this collateral damage. What a difference 24 hours make? As of Monday, the director of the CIA had resigned over an affair with his biographer.

Today, we learn the top U.S. commander in Afghanistan is also implicated in the scandal as well as an unnamed FBI official who was taken off the case for becoming too involved.


GRIFFIN (voice-over): David Petraeus' paramour was seen in public for the first time since the affair was revealed Friday, jogging in the rain outside her brother's northwest Washington home, and then later, in an SUV.

Overnight, the defense secretary announced John Allen, his commanding general in Afghanistan, was also under investigation for sending and receiving hundreds of, quote, "flirtatious" e-mails that amounted to nearly 30,000 pages to and from Jill Kelley, the Tampa Bay socialite whose original complaint to the FBI resulted in the Petraeus affair being revealed.

Defense Secretary Panetta's office notified the chairman of the House Armed Services Committee that he had referred the Allen investigation to the Pentagon's inspector general.

GEORGE LITTLE, PENTAGON PRESS SECRETARY: While this matter is under investigation, and before the facts are determined, General Allen will remain commander of ISAF. General Allen is entitled to due process in this matter.

GRIFFIN: The White House then postponed Allen's confirmation hearings to be the next supreme allied commander of Europe, which were slated for Thursday and asked that Senate move quickly on confirming marine general, Joe Dunford, as the next commander for Afghanistan.

Allen, who is married, insists he did not have a sexual affair with Kelley. Both Petraeus and Allen got to know Jill Kelley in 2010 when both were based at CENTCOM. Allen was Petraeus' deputy in Tampa Bay, Florida, where Kelley is married to a surgeon and has a pension for hosting parties for top military brass.

She used to shop with Petraeus' wife, Holly. Meanwhile, Paula Broadwell has hired an attorney. Her father told the "New York Daily News" that, quote, "This is about something else entirely and the truth will come out. You wait and see. There's a lot more here than meets the eye."

In another twist, it seems both Petraeus and Allen wrote letters of support for Kelley's twin sister, Nathalie Khawam, as part of a bitter custody battle in September, quote, "We hosted them and the Kelley family for Christmas dinner this past year," Petraeus wrote on September 20th.

In each case, we have seen a very loving relationship, quote, "I humbly request your reconsideration of the existing mandated custody settlement," Allen wrote on his official letterhead.


GRIFFIN (on-camera): In a separate twist, we can confirm the FBI agent that Kelley first approached is now being investigated himself for sending shirtless photos to Jill Kelley and also becoming obsessed with the case. He also may be the source of the leak to Congress about the Petraeus affair -- Bret.

BAIER: It's unbelievable. Jennifer, some on Capitol Hill are saying all of this is overshadowing the Benghazi investigation. The CIA is denying that any prisoners were being held at that CIA annex in Benghazi saying, you know, very carefully worded statement that the CIA got out of the detention business in 2009.

GRIFFIN: Well, our principal source, Bret, who was at the annex on September 11th says there were three Libyan detainees who were handed over to the Libyan security forces that night. Our colleague, Adam Housley, has sources on the ground in Benghazi saying the CIA annex was being used as a processing facility for detainees despite the 2009 executive order signed by President Obama barring these black sites.

"Daily Beast" reporter, Eli Lake, reported on January 28, 2009, when he worked for the "Washington Times" that there was a loophole in the executive order that enabled the CIA to hold prisoners for a few days for questioning, quote, "A little noticed exception that allows the spy agency to continue to operate temporary detention facilities abroad" -- Bret.

BAIER: OK. We'll continue to follow this part of the story as well. Jennifer, from the Pentagon, thank you.

Congress has certainly not lost sight of the connection between the Benghazi scandal and the Petraeus one. Chief intelligence correspondent, Catherine Herridge, looks at how one overlaps the other. Good evening, Catherine.

CATHERINE HERRIDGE, FOX NEWS CHIEF INTELLIGENCE CORRESPONDENT: Well, thank you, Bret, and good evening. Tonight, two senior Democrats are crying foul over the handling of the Benghazi scandal. The House minority leader telling reporters late today that Congress should have been briefed on the FBI's investigation into the CIA director if national security was involved.


NANCY PELOSI, (D-CA) HOUSE MINORITY LEADER: I think there are some answers that we have to have about notification to Congress.

HERRIDGE (voice-over): With growing complaints from Capitol Hill about the failure to notify the leadership of relevant Congressional committees, the White House said the buck stops with the bureau.

JAY CARNEY, WHITE HOUSE PRESS SECRETARY: I would refer you to the FBI. They have, as I understand it, protocols in place for when they notify the legislative executive branches of investigations. And, you know, it is simply a fact that the White House was not aware of the situation regarding General Petraeus until Wednesday.

HERRIDGE: The Democratic chair of the Senate Intelligence Committee, Dianne Feinstein, is now threatening to subpoena a CIA report summarizing former Director Petraeus' trip to Libya the week of october 31st, where he personally looked into the consulate attack.

DIANNE FEINSTEIN, (D-CA) SENATE INTELLIGENCE CMTE CHMN: My immediate gut is like this is the "National Enquirer." I mean, every day, there is something new. And, that really does not affect what we're doing. It may add to it somewhat, but what the intelligence committee will begin tomorrow is an inquiry into the Benghazi episode.

It's also my intention that this has not yet been announced to talk with General Petraeus, Director Petraeus. This ties in to his trip that he made just before all of this broke to some Middle Eastern countries, including Libya.

HERRIDGE: While the acting CIA director briefs the House and Senate minority leaders on Capitol Hill, the Senate Foreign Relations Committee held a closed, classified hearing. It is the first of a half dozen hearings or briefings on the attack this week where both Democrats and Republicans insist General Petraeus must eventually testify.

JOHN BARRASSO, (R-WY) SENATE FOREIGN RELATIONS COMMITTEE: He has just gotten back from a trip over there, but also what happened in a real-time version, because the American people have a right to know.

HERRIDGE: Asked whether the former CIA director should be required to testify, the White House spokesman suggested Petraeus' insight was not mandatory.

CARNEY: I'd say two things. One, that it's up to Congress to make decisions about who is called to testify. But the president is confident that acting Director Morrell is fully informed and capable of representing the CIA in hearing about the incidents in Benghazi.

HERRIDGE: But some lawmakers say they must hear from the former director so he can explain why on September 14th, three days after the consulate attack, he told lawmakers it was like a flash mob and why he seemed so wedded to the administration's view that the anti-Islam video was to blame.

PETE KING, (R-NY) HOUSE HOMELAND SECURITY CHMN: At the time, he presented the information to congress on September 14th, whether or not he had been told by then or learned by then, that he was under investigation. That he consciously or subconsciously that could have altered the information he gave to Congress.

MARCO RUBIO, (R-FL) SENATE INTELLIGENCE COMMITTEE: I think we need to hear from David Petraeus as well. But I think, ultimately, we need to hear from Secretary Clinton. I'm sure she's willing to come in and talk about it.

HERRIDGE: As FBI agents raided the home of Petraeus' mistress, Paula Broadwell, in North Carolina, lawmakers question the timing of events unfolding at a lightning pace after the election.

MAC THORNBERRY, (R-TX) HOUSE INTELLIGENCE COMMITTEE: Why would the raid on the lady's just happen this week if this investigation had been going on for months? So, I think the FBI has a lot of questions to answer.


HERRIDGE (on-camera): Well, a former spokesman for General Petraeus has insisted publicly the affair ended four months ago. Fox News has learned that in the last week of October at a society dinner in Washington for the elite of the U.S. intelligence community, Paula Broadwell was openly bragging about, quote, "two book ideas that she and the general were pursuing."

The witness who asked to remain anonymous said Broadwell was beaming, and that later that evening, showing no obvious signs of distress even though the FBI had interviewed her a month earlier, Bret.

BAIER: OK. Catherine, thank you.

HERRIDGE: You're welcome.

BAIER: Bad news for a third general. Defense secretary, Leon Panetta has demoted the former head of U.S. Africa command. General William "Kip" Ward who was accused of spending thousands of dollars on lavish travel and other unauthorized expenses will retire as a three-star general, not a four-star.

The looming fiscal cliff does not have the sex appeal or intrigue of tangled spy affairs. But as Congress returned to session today, the stakes start out as high as they come, keeping the U.S. from sliding into another recession. Here's Wendell Goler.


WENDELL GOLER, FOX NEWS WHITE HOUSE CORRESPONDENT (voice-over): With Republicans insisting the president's re-election was not a mandate for a tax increase, White House Press secretary, Jay Carney, made clear it was a death sentence for the Bush administration's upper income tax cuts.

CARNEY: The president will not sign a bill that extends tax cuts for the top two percent, the extension of the Bush era tax cuts.

GOLER: Carney left open the prospect of tax reform, though, it's unlikely Congress has time for that a month-and-a-half before the deadline for deficit reduction plan to avoid tax hikes and spending cuts that could trigger a recession.

On Capitol Hill, the reaction from House Budget Committee chairman, Paul Ryan, was blunt.

Ryan spoke as the treasury department announced the $120 billion deficit for October, suggesting fiscal 2013 will see the fifth straight trillion-dollar deficit. Senate Republican leader, Mitch McConnell, said higher taxes won't solve that problem.

MITCH MCCONNELL, (R-KY) SENATE MINORITY LEADER: This is a partisan politics. It's economics. As the president might say, it's map (ph), raising tax rates on top earners as the president has proposed would destroy over 700,000 jobs.

GOLER: On this day, the president met with labor and progressive leaders who've been urging since the day after his re-election that he opposed cuts in Medicare and Social Security benefits.

RICHARD TRUMKA, AFL-CIO PRESIDENT: We're very, very committed to making sure that the middle class and workers don't end up paying the tab for a party that we didn't get to go to.

GOLER: But reigning in the cost of Medicare and Medicaid is essential to controlling the deficit. Mr. Obama's offered about $34 billion a year in savings. Republicans don't think that's enough, and they're demanding to be part of the solution.

MCCONNELL: The voters also re-elected a Republican controlled House last week and a closely divided Senate. And in a government of three equal branches, that's hardly irrelevant.

GOLER: At the White House, despite the seeming impasse over the Bush tax cuts, Jay Carney insists that there is flexibility in dealing with the deficit.

CARNEY: I don't think the president is in a position of boxing ourselves in or boxing others out. He looks forward to the meeting with leaders in Congress.


GOLER (on-camera): Before those talks, the president will also meet with business leaders and leaders of civic groups and hold a news conference to make sure the American public knows his take on his re- election -- bret.

BAIER: Wendell Goler live on the North Lawn. Wendell, thank you.

Is a movement for a group of states to leave the union a joke? We'll lay it out later in the grapevine.

And up next, business leaders express concern and uncertainty after President Obama's re-election.


BAIER: A week after the election, some business leaders are looking at the results and contemplating what it means for their companies. And as correspondent Doug McKelway reports, they're worried.


DOUG MCKELWAY, FOX NEWS CORRESPONDENT (voice-over): The president is expected tomorrow to import 20 of the nation's top CEOs to tap into businesses almost $2 trillion in cash reserves to stimulate job creation, but the looming fiscal cliff, uncertainty in Europe, and especially the full implementation of Obamacare have businesses fearful of expansion.

ZANE TANKEL, APPLE METRO: We've calculated there will be some millions of dollars across our system. Some millions. So, what does that say? That says we won't build more restaurants, we won't hire more people, exactly the opposite effect.

MCKELWAY: In a separate gathering of CEOs today, the "Wall Street Journal" CEO council annual meeting, few industry titans were optimistic.

SIR MARTIN SORRELL, WPP GROUP: I had the sessions this morning. I can't really quite (INAUDIBLE). They definitely believe there will be some agreement before December --

MCKELWAY: On the fiscal cliff?

SORRELL: On the fiscal cliff.

MCKELWAY: That pessimism may be rooted in history, the last budget negotiations conducted by the so-called Super Committee.

ROB PORTMAN, (R) OHIO SENATOR: It's very disappointing, but the reality is, you know, the president did not weigh in. He issued a veto (ph) threat immediately upon our, you know, first meeting. He gave the Democrats no cover. He showed no leadership. He didn't help us on tax reform, entitlement reform. He needs to be part of this process. That would make a huge difference.

MCKELWAY: Today, White House signals about pending negotiation sounded eerily similar to last year.

CARNEY: If we ask the wealthiest Americans to pay a little bit more, we can continue to invest in areas of the economy that need investment. And, we don't have to ask seniors or parents of disabled children or the least fortunate among us to bear the burden of getting our fiscal house in order.

MCKELWAY: But both parties may be under greater pressure to compromise this time given recent signals from the private sector. Yesterday, Hostess Brands announced it is closing three bakeries and laying off 627 employees.

It joins Boeing Company, GroupOn Incorporated, Applebee's International, Papa John's, and Murray Energy, who've all announced layoffs or other job cuts since the election.


MCKELWAY (on-camera): One thing that would surely ease business pessimism would be an administration agreement to streamline regulations. In the past 90 days, the Obama administration has posted nearly 6,000 regulations of notices on its website. That's an average of 68 a day -- Bret.

BAIER: Doug, thank you.

Stocks fell today. The Dow lost 59. The S&P 500 dropped 5.5. The NASDAQ was off 20.

Slightly more Americans will be traveling this Thanksgiving than last year. AAA predicts nearly 44 million Americans will travel at least 50 miles from home. It cites the 35-cent drop in gas prices over the last month.

While that drop is good thing for travelers, of course, it could spell bad news for North Dakota. Correspondent Alicia Acuna looks at the state's future and its place in American energy independence.


UNIDENTIFIED MALE: -- of interest to people all over the world.

ALICIA ACUNA, FOX NEWS CORRESPONDENT (voice-over): Bakken is an oil rich shale formation that covers 25,000 square miles of North Dakota, Montana, and parts of Canada. It was discovered in 1950s, but Ron Ness, the president of the North Dakota Petroleum Council says only recently have companies found where it's most productive.

RON NESS, NORTH DAKOTA PETROLEUM COUNCIL: It's really only one buck, and at this point, other people are searching for it across the world.

ACUNA: A typical Bakken well is projected to produce for 30 years.

NESS: What the Bakken means, it means domestic energy. It means for every barrel we produce in the Bakken, we need one less barrel from some unfriendly country.

ACUNA: Worries about the upcoming fiscal cliff and a lowered forecast for demand have recently put a dent in price per barrel. Insiders say the biggest threats to the Bakken's bright future, a major drop in oil prices or increase federal regulations and taxation.

LYNN HELMS, ND DEPARTMENT OF MINERAL RESOURCES: We're constantly making trips to Washington D.C. We're always in contact with our senators and our congressman.

ACUNA: Williston, North Dakota is in the heart of Bakken country where activity has been full throttle.

TOM ROLFSTAD, WILLISTON ECONOMIC DEVELOPMENT: Just the oil companies alone are spending about $2 billion a month on their investments just to drill the wells out here.

ACUNA: North Dakota's profit from this oil and gas development, an estimated $1.6 billion budget surplus.


ACUNA (on-camera): North Dakota's Department of Mineral Resources says the Bakken's been booming because there is not a lot of federal land. The state has a high percentage of privately owned property. Plus, the state has a history of being business friendly -- Bret.

BAIER: Alicia Acuna in Denver. Alicia, thank you.

Still ahead, the controversial figures who might be up for cabinet posts.

First, their homes are uninhabitable, and that's just the beginning. How to stay healthy in a temporary shelter?


BAIER: The Long Island power authority is looking to restore service to most of its New York customers still suffering in the aftermath of hurricane Sandy. But more than 50,000 homes and businesses are still in the dark.

Meanwhile, tens of thousands have taken to shelters after their homes have become uninhabitable. Those shelters have undeniably given storm survivors a better option than sleeping out in the cold, but there are still health risks. Here's Dr. Marc Siegel of Fox's medical A-team.


Dr. MARC SIEGEL, FOX'S MEDICAL A-TEAM: Close confines here. I'm worried about the spread of disease, measles. It's flu season, diarrheal diseases. How do you prevent all of that from happening?

VICKI EICHSTAEDT, AMERICAN RED CROSS: Well, in close quarters it's a problem, but what we do is to make sure that people have water. We make sure that people have clean sanitary spaces to use the restroom and shower. We're very careful of our food handling, making sure people wear gloves, making sure the food is served at correct temperature.

And we do have health assessment here as well to make sure that if people are feeling under the weather, they can talk to a nurse to see if there's anything that needs to be done.

SIEGEL (voice-over): At this shelter at the (INAUDIBLE) high school in New Jersey, the Red Cross and local health authorities have taken care of more than 200 people on a given night, giving them refuge.

(on-camera) People are trying to get back to their lives, is there a role for informal therapy here?

UNIDENTIFIED FEMALE: Absolutely, and that's the mental health peace. We're here all day, talking to people, sitting at the table, eating meals with them, finding out what's going on.

SIEGEL: How do you give them sense of control back?

UNIDENTIFIED FEMALE: We talk about what their life is like before, what they'll be returning to, you know, some of the good things. They've got their families. Kids will be back in school. There'll be a sense of normalcy again.

SIEGEL: What about post-traumatic stress? How do you prevent that from happening after an event like this?

UNIDENTIFIED FEMALE: Well, part of it is doing the work in the crisis so that it's not post-traumatic. So, it's not coming back at them in three months or six months or whatever. Just talking about now. Where were you? What was happening? How did it feel? What was the damage?

SIEGEL: How do people make their kids feel safe?

UNIDENTIFIED FEMALE: You know, kind of frame it in a bit of an adventure. Kind of like an extended camping trip.

SIEGEL (voice-over): For victims who were animal owners, there is a separate shelter for their pets.

UNIDENTIFIED FEMALE: This has been so good. The hot water, the heat in the place. They've been over. Food. It's just been so good. I'm so grateful.

SIEGEL (on-camera): So, how can we end up with better statistics than after Katrina when 35 percent suffered mental illness and others had heart attacks from the stress? With well-organized shelters like this one, victims of Sandy are getting the support they need -- Bret.

BAIER: Dr. Siegel, thank you.

The head of New England Compounding Center linked to that deadly meningitis outbreak plans to plead the fifth at Wednesday's hearing before the Energy and Commerce Committee. So far, 32 deaths have been reported. The NECC sister company also has a host of problems. Issues range from manufacturing, to sterility, and quality control.

Ameridose agreed to shut down for a month during which time federal inspectors found leaky ceilings, insects, and other unsanitary conditions. Ameridose said in a statement Monday that it will work to address those issues.

A battleground state cuts food stamp benefits three days after the election. And Victoria's Secret ruffles feathers. The "grapevine" is next.


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