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ANDERSON COOPER 360 DEGREES

Tracking Mitt Romney's Money; Obama's Attack Strategy; Cambodia Health Mystery

Aired July 10, 2012 - 22:00   ET

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


ANDERSON COOPER, CNN ANCHOR: Good evening, everyone. It's 10:00 here on the East Coast.

And we begin tonight "Keeping Them Honest" with Mitt Romney's money and the political firestorm over the fact that some of it is or was invested overseas in countries like Switzerland, Bermuda, places like the Cayman Islands, places that are well known as tax havens for the very wealthy.

But the Romney campaign says that's not true for the governor. Spokesman Kevin Madden says -- quote -- "Some investments in some foreign countries can be tax havens, but Mitt Romney doesn't hold any such investments."

"Keeping Them Honest," though, a tax shelter expert who has investigated and written an article on Mr. Romney's holdings says it's not so clear-cut. You will hear my interview with him in just a moment.

It's important to point out, though, no one is accusing Governor Romney of breaking any laws, either in how he earned that money or how he does his taxes. But Democrats are certainly having a field day with where some of Romney's fortune is or was invested.

(BEGIN VIDEO CLIP)

JOSEPH BIDEN, VICE PRESIDENT OF THE UNITED STATES: And this is a man who says President Barack Obama is out of touch, out of touch with the needs of the American people, this coming from a man who until recently had a Swiss bank account and millions of dollars invested in the Grand Cayman Islands beyond security -- beyond scrutiny. And President Obama is out of touch?

(END VIDEO CLIP)

COOPER: That was just part of a Democratic tidal wave.

(BEGIN VIDEO CLIP)

GOV. MARTIN O'MALLEY (D), MARYLAND: ... against America when he put his money in Swiss bank accounts and tax havens and shelters and also set up the secret company, the shell company in Bermuda?

BEN LABOLT, OBAMA CAMPAIGN PRESS SECRETARY: Won't answer any questions about why he opened a corporation offshore in Bermuda, why he keeps his finances offshore in the Cayman Islands, why he opened a Swiss bank account.

BIDEN: Did you ever think you would have a nominee of a major political party running for president who has significant investments in the Cayman Islands?

REP. DEBBIE WASSERMAN SCHULTZ (D), FLORIDA: Americans need to ask themselves, why does an American businessman need a Swiss bank account and secretive investments like that?

ROBERT GIBBS, FORMER WHITE HOUSE PRESS SECRETARY: This is a guy whose slogan is believe in America. And it should be business in Bermuda.

(END VIDEO CLIP)

COOPER: Bermuda refers to one of a series of hedge funds operated by Bain Capital, Mr. Romney's former company.

We know about it from the sole compromise tax return that he made public, a tax return from 2010. He's also put out an estimated tax return from 2011, but he didn't want to release anymore. And we should point out he's not legally required to at all. No candidate is. He kept his taxes private in 1994 when he ran for the Senate, during his run for governor and during his 2008 presidential campaign.

This time, though, under pressure from Republican primary opponents, he did this limited disclosure. The returns and other campaign filings revealed those overseas investments which are detailed in this month's "Vanity Fair" magazine. The article, title, "Where The Money Lives," the article says Mr. Romney has a pressure stake in at least a dozen Cayman companies worth as much as $30 million.

In addition, "Vanity Fair" and the Associated Press detail that hedge fund, the one established in Bermuda, that managed more than $100 million. For his part, Mr. Romney himself has said he pays all that the law demands in terms of taxes and not a penny more, same as anybody. His investments, he says, are in a blind trust.

(BEGIN AUDIO CLIP)

MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: My investments have been held by a blind trust, have been managed by a trustee. I don't manage them, don't even know where they are. Those -- that trustee follows all U.S. laws. All the taxes are paid, as appropriate. All of them have been reported to the government. There's nothing hidden there.

(END AUDIO CLIP)

COOPER: "Keeping Them Honest," though, experts say there's no real way to know that precisely or to know how precisely some of these investments work without more data, which the candidate obviously is not supplying.

Now, when asked today whether Mr. Romney should release his tax returns, meaning more than 2010 and 2011, Congressman Jason Chaffetz, who is a Republican, said he already has. "Governor Romney has been very successful," the congressman said. "Get over it."

Joining me now is Nicholas Shaxson, who wrote that "Vanity Fair" piece. He is also the author of "Treasure Island: Uncovering the Damage of Offshore Banking and Tax Havens."

Nicholas, you say in your article that Mitt Romney pushes into what you call some fuzzy gray zones. What do you mean by that?

NICHOLAS SHAXSON, "VANITY FAIR": Well, at the end of the day, it has been a kind of article of faith and repeated by the Romney campaign many times that Mitt Romney, he may have been something of a financial gymnast, doing all sorts of backflips to avoid taxes, but he's never actually broken the law.

In my article, I kind of question that. I sort of said, is that actually true? And the answer to that question is not completely straightforward. I don't find, you know, examples of outright tax evasion, which is by definition illegal.

But at the end of the day, between the poles of tax evasion, illegal tax evasion and tax avoidance, there is a gray area, and especially when you start dealing with offshore tax havens. There's quite a large gray area. And financial players and various other players go into this gray area. It's an often an area where you can make an awful lot of money.

COOPER: Kevin Madden, who is a senior Romney adviser, told "FOX News Sunday" that Romney -- and I quote -- "He hasn't paid a penny less in taxes by virtue of where these funds are domiciled. His liability is exactly the same as if he held them directly in the U.S. As a U.S. citizen, he is accountable for U.S. taxes. Some investments in foreign countries can be tax havens. But Mitt Romney does not hold any such investments."

Is all that accurate, according to your reporting? Can you say that definitively?

SHAXSON: Well, no, not quite.

This claim that, you know, he pays exactly the same taxes as if he'd invested in the United States, his investments through the Cayman Islands, exactly the same tax rate, it's not quite true, or at least it appears not to be. Again, this is one of the questions where we don't have clarity, but there are strong indications.

But on your earlier point about, you know, saying -- it has been said by the Romney campaign and others that these are not tax havens. We're not investing through tax havens.

That is something that has been repeated. And that is something I have seen. I have been researching tax havens for many years and it's one of the commonest things of places like the Cayman Islands and Switzerland and all sorts of traditional well-named tax havens routinely, is that we are a tax haven. We are a responsible international financial center, and all this.

These places are tax havens. And when you hear them say that, that is simply not true. These are tax havens.

COOPER: So, when the Romney adviser yesterday said he doesn't have foreign accounts, he has foreign investments, assuming the Swiss account is no longer active, is that true that he doesn't have foreign accounts, he just has foreign investments?

SHAXSON: It is generally foreign investments, yes. Yes. That's the -- that's right.

COOPER: So, bottom line, when it comes down to it, to you, does it look like Romney's done anything illegal here or is he just a savvy businessman taking advantage of loopholes or a less-than-airtight system?

SHAXSON: Well, again, the question comes back to these gray areas.

More often than not, though, these gray areas stay gray. And Romney has definitely been very comfortable in these areas, you know, not in most cases getting kind of to the edges of the law, those fuzzy edges of the law and stepping around those areas. And he seems very confident in going into these areas. And it does seem to be a pattern.

COOPER: Do we know why he invested in the Cayman Islands? Is there any reason to invest in the Cayman Islands other than a tax advantage?

SHAXSON: Generally, you would -- if it's private equity companies, it would generally be a tax advantage, yes. That would be the reason.

The Cayman Islands does have a very strong secrecy. It has a law, the confidential relationships protection law, under which you can go to jail for -- not just for revealing information, but for asking for it. But I think, fundamentally, if Mitt Romney has been having, you know, routine investments through the Cayman Islands, I think fundamentally it is about tax. It is about helping -- not only helping yourself potentially avoid tax, but also attracting foreign money that could be tax-evading money. It could be just tax-avoiding money. We don't know.

COOPER: Nicholas Shaxson, I appreciate your reporting. Thank you.

SHAXSON: OK. Thanks.

COOPER: Let's dig deeper into this now with Republican strategist Mary Matalin and chief business correspondent Ali Velshi.

I spoke to them earlier.

(BEGIN VIDEOTAPE) COOPER: So, Ali, what do you make of this? Beyond some potential tax advantages or privacy advantages, is there any legitimate reason to have investments in the Cayman Islands?

ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: I have been making phone calls on this. And I have been trying to investigate.

Generally speaking, not. There are legitimate reasons why you would have offshore accounts and offshore investments and blind trusts. None of them seem to suit the profile of a guy like Mitt Romney. You can't not declare your holdings. You can't not declare your income.

So it does seem to be that when he established these things, being rich wasn't sort of public enemy number one in America. And this is probably the worst time to have to disclose all this money that he's got. So they have sort of been trying to keep this under the radar. And now it's just floating above the valid, but, no, no valid reason, no real savings of money or payable tax.

COOPER: Well, it's not just floating above the radar, Mary. Obviously, the Obama campaign is trying to paint Mitt Romney as a ruthless rich guy who's got something to hide.

The Romney campaign is saying, look, we don't have anything to hide. If that's true -- and it certainly seems to be -- why not just release more tax returns and short-circuit the Obama attack?

MARY MATALIN, CNN POLITICAL CONTRIBUTOR: Well, first, let's make it clear that there is no legal requirement.

There's possibly, possibly a political requirement. But I would -- my opinion is it would be very, very bad politics for Mitt Romney to do this. The Obama strategy, which they have made very clear is their strategy, is just to attack, attack, attack, attack.

But what they're also trying to do is just make a distraction. And to the extent that Romney says anything other than, yes, I have been a success, you can be a success in America, he should stay on his message, which is to say, as long as Obama is president, your chances of becoming a success in America are limited.

So, I think it's much ado about nothing, not to mention these trust funds are out of his control and have been for many decades.

COOPER: But it's interesting. I tweeted about this to people, saying, do you think it's relevant or not? Some people said, look, it's absolutely not relevant. It's coming off as an attack against success.

And certainly that's what a lot of Republicans hope it's coming off as. But there are others who say, look, how a person invests their money or spends their money tells about what kind of person that that person is. And if they're hedging bets against the U.S. dollar by investing overseas, people should know that.

MATALIN: I think you would be pretty stupid to not hedge against an American dollar in this Obama economy.

What tells more about a person -- and I would hope the Romney people could get this out somehow -- it's not what he's paying in taxes, which is exponential, and it's the equivalent to the success that he's made, but what he contributes in charity. There's never been a candidate or a governor or anybody in public office that I know of that contributes the percentage of his income to charity and other foundations that he supports. That's unprecedented.

That says more about him...

COOPER: You're talking about tithing through his church.

MATALIN: I'm talking about his -- well, which counts. I'm also talking about his other charitable contributions and foundations that he supports, and far exceeding any tax benefits that would accrue from them. That's what is the measure of a person to me or one of the many measures of a person.

COOPER: Right.

MATALIN: What they pay in legal taxes says to me nothing.

COOPER: Ali, the Romney people are saying, look, he has paid absolutely all the taxes that he is legally expected to pay. There's no evidence that that is not true.

Is it -- I mean, is there any tax advantage really to having these overseas investments? Because somebody -- you still have to pay the taxes.

VELSHI: I would love to have an answer to that. But we don't know enough information to do so.

The issue is, there was a time -- and it was not as -- it was as recently as 10 or 15 years ago when there were specific advantages to having these offshore accounts. Usually, there was secrecy, avoidance of certain types of taxes and avoidance of taxes in the United States. All of that stuff is now not legal.

It may that some of these accounts are legacy, some of these holdings and investments are legacy investments. There are some reasons why you would do it. But the reason this has not gained much traction is because it's highly complicated stuff and the rest of us are not accountants.

Once we actually start talking about this, I think it will become obvious that starts to become more of a distraction than it needs to be. And the best policy would probably be to come forward, because if Mitt Romney is hedging against U.S. dollars, nothing illegal about that. You can actually do that with all your accounts in the United States.

If you would like to invest in Swiss francs because you think they're more stable, you can do that in the United States. So there's no valid reason why this is happening. There's no valid reason why Mitt Romney isn't explaining why it's happening. And in this economic environment, the concept, the idea of secrecy starts to become a little bit hard to deal with.

COOPER: Mary Matalin, appreciate you being on, and Ali Velshi as well. Thanks.

(END VIDEOTAPE)

COOPER: Well, let us know what you think about this.

We're talking about it right now on Twitter @AndersonCooper.

Also, a lot of "Raw Politics" tonight, including a closer look at the Obama campaign strategy of talking about Mitt Romney, attacking Mitt Romney on his finances and how he ran Bain Capital, instead of talking about how Mr. Obama is running the economy. We will talk about that ahead.

(COMMERCIAL BREAK)

COOPER: Well, let's look at some "Raw Politics" tonight.

In Washington, they call it pivoting. To you me, it's called changing the subject, candidates, elected officials in both parties trying to shift the spotlight away from something damaging, something like lousy jobless numbers, to something else.

The bad unemployment number came out, you know, on Friday morning at around 8:30. Not long after, and pretty much ever since, the White House, the Obama campaign and his surrogates have been trying to change the subject. They have been trying to change the subject to Mitt Romney's finances, as you have already heard, and especially to this.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: His company that he started were called the pioneers of business outsourcing, the pioneers of outsourcing.

NARRATOR: Newly published documents show Mitt Romney's firms were pioneers at helping companies outsource their manufacturing to companies countries, including China.

WASSERMAN SCHULTZ: To give another incentive to companies that send jobs overseas.

GIBBS: We have got a guy who believes and has been a pioneer in outsourcing jobs.

NARRATOR: Mitt Romney's not the solution. He's the problem.

(END VIDEO CLIP)

COOPER: Well, those are some shots from the very partisan playbook. Now some nonpartisan contribution.

Joining us tonight, senior political analyst David Gergen and Daily Beast contributor Patricia Murphy. She's the founder and editor of Citizen Jane Politics.

(BEGIN VIDEOTAPE)

COOPER: David, this attempt to pivot from a bad jobless report to a full-on attack on Romney is clearly a concerted strategy from the Democrats. Is it working?

DAVID GERGEN, CNN SENIOR POLITICAL ANALYST: Hard to say, Anderson.

The early indications were that it might be working in some of the swing states. But now we have numbers that have come out on how much the Obama campaign has spent on advertising in swing states like Ohio. and the Obama campaign has outspent the Romney campaign on advertising about 3-1. Even if you add in the PAC money on the Republican side, Obama's still ahead.

And yet these anti advertisements don't seem to have moved the needle. It's still a very, very tight race in Ohio.

COOPER: Yes, Patricia, some are saying, listen, Obama's playing a mediocre hand pretty well. Romney is playing a strong hand poorly, particularly on the economy. Do you think that's a fair assessment?

PATRICIA MURPHY, EDITOR, CITIZENJANEPOLITICS.COM: I don't know if that's a fair assessment. I would say, the last week or so, Romney has played it very poorly. I don't think that going on vacation at your lake compound in New Hampshire is a really great way to play off the economy.

But I do think when he went into Colorado today, really became much more aggressive, much more aggressive than we have seen him, going after the president's record, going after the health care bill, asserting himself in the health care arena, which he really had been backing away from. I think he's starting to do better.

I think it's way too early to say how he's playing his hand. It didn't go great last week. It went a lot better today.

COOPER: David, the governor consistently does poll higher than the president when it comes to who voters trust to handle the economy. The president polls pretty poorly on the economy in general.

So, I mean, trying to shift the focus away from the current economic situation, though it's understandable, it's not necessarily going to change those numbers in favor of the president, is it?

GERGEN: Absolutely not, Anderson.

The underlying numbers -- and we will have to watch these job numbers every month now, right through until the election. The president has to get those numbers up. At least the -- I think anything that shows less than 100,000 jobs a month is bad news for the president. He gets up around 200,000 jobs a month, as he was a few months ago, that could be very, very good news for him.

But that's the underlying , essential -- what I do think these attacks are doing, Anderson, is raising questions about Mitt Romney's sort of finances, and I think it's going to increase the pressure on him to release more of his tax returns.

COOPER: It's interesting, Patricia.

James Carville and Stan Greenberg formerly worked for President Clinton, worried out loud that Obama was going to get beat with his economic message that things are getting better, saying that he shouldn't try and beat Romney on the are you better off than you were four years ago argument, instead should be focusing on how things are going to get better in the next four years, if in fact they are.

Do you think they have a point with that?

MURPHY: I think they have a point.

I think that's really the only place that the president can go. The last four years have been very, very difficult for a lot of people. Even though it's better for some people, maybe the unemployment rate has come down a little bit. It's ticked down. A lot people are still struggling so much. So many people have dropped out of this economy.

He really doesn't want to talk about that. So, you have to say, I know it doesn't feel good, but it's going to get better. I'm the person to do it. But then you see the president pivoting immediately to Mitt Romney. That's what all these Bain attacks are about.

It's saying, I know that it hasn't been going great, but you can't trust Mitt Romney to do it any better. He's going to offshore those jobs. This is a person, if you look at what he's doing, his personal finances, this is what he's going to do to the country's finances, anything for a buck.

So, I think the president doesn't want to look back. But I don't think Americans are going to let him off the hook that easily. I think the only way to let him know how he's going to perform in the future is how he's done in the past. And that's what this election is about.

COOPER: David, the president also does open himself up criticism that he's attacking success, he's attacking someone who's successful.

GERGEN: Absolutely.

And I happen to think that the attacks on Bain Capital are way off-base. I know something about that company. I know the people who work there. I have done some work with them in the past. I was on a board. We sold out to Bain Capital on a corporate board. And we had big questions about whether Bain was going to be a good steward of a child care company. And they have been terrific stewards. I think a lot of these attacks are ill-founded. They are an attempt to paint Romney as something other, top 1 percent, top .001 percent of the country, out of touch, elite, all the rest. Going back to Patricia's point, taking that vacation I think was ill-timed.

But, fundamentally, think the country really wants to know which of these guys can actually bring growth and jobs. And I don't think either of them yet has persuaded the country that they can do that.

COOPER: David Gergen, appreciate you being on, Patricia Murphy as well. Thanks.

MURPHY: Thanks so much.

GERGEN: Thank you.

COOPER: Well, coming up tonight, chief medical correspondent Dr. Sanjay Gupta, he's on the front lines of this really horrific medical emergency. Disease detectives are racing the clock to try to figure out what is killing young children -- 64 children have died so far.

The question, are they any closer tonight to solving the deadly mystery? Sanjay is going to join us tonight from the front lines with the latest next.

(COMMERCIAL BREAK)

COOPER: "Up Close" tonight: the latest on the search for a killer that's striking down children in Cambodia.

Disease detectives are working around the clock right now to try to identify the culprit.

Our chief medical correspondent, Dr. Sanjay Gupta, is there. So far, 64 children, most of them younger than 3, have died from an unknown illness. It began three months ago, this outbreak.

Whatever the illness is, it kills quickly, often within 24 hours. It's happening in Cambodia. And health officials there are getting help from the World Health Organization, as well as the CDC.

You can imagine the sense of urgency.

Our chief medical correspondent, Dr. Sanjay Gupta, is there tonight in Cambodia, a country with one of the highest rates of child mortality in Southeast Asia.

(BEGIN VIDEO CLIP)

DR. SANJAY GUPTA, CNN SENIOR MEDICAL CORRESPONDENT: So many people getting sick here, in the thousands. And if they do, what happens next? Oftentimes, they have to rally their neighbors, gather a little money, and maybe hire a tuk-tuk like this one over here to get them to a hospital as quickly as possible. (END VIDEO CLIP)

COOPER: Wow. Now they're facing this unknown enemy, a new outbreak that remains a mystery.

Sanjay joins me now live.

Sanjay, I think what must be so frustrating and alarming for people there is not knowing what causes this mystery illness. They don't really know how to protect themselves. So, when do we expect any sort of an update on what the cause may be?

GUPTA: I think there's a leading theory now in all this, Anderson, talking to the doctors here, this Enterovirus 71, something that we talked about last night.

It's something that's shown up positive in several of the patients. But most of the doctors here, including doctors from the hospital and the World Health Organization, seem to think that's not the only thing that could be causing this.

So, a lot of focus is on, is there another pathogen, another virus or bacteria, or is it a medication of some sort that's doing this? So that's where they're sort of focusing their attention now. In terms of protecting themselves, the messages that are going out, the alerts that are going out are telling parents of children who may be getting sick to just simply bring the kids to the hospital right away.

Don't try and take any of these medications out in private clinics beforehand, because they think that, if that's the problem, that that's -- they're having a hard time controlling that. So the kids are coming into the hospital. The hospitals are already full. But they think that's the best course of action, Anderson.

COOPER: So that virus, the number you mentioned, that's foot and mouth disease, right? How is that spread?

GUPTA: Yes, hand, foot and mouth disease.

And, typically, it's fairly contagious. It's an enterovirus, so it's something that the body excretes, and then people who have not washed their hands properly can subsequently ingest it. That's typically how it's spread.

But I will tell you, and if there's any good news in all this, it doesn't appear to be very contagious. We don't know why, because you would expect it to be contagious, to your point. But it doesn't appear to be contagious within households. It doesn't appear to be clustering within communities.

They don't know why. But it's a little bit of good news. It doesn't seem to be spreading.

COOPER: So, who exactly is in charge of the testing? Is it the World Health Organization who are running things? Is it Cambodian health officials?

GUPTA: This is a confusing point.

And I will tell you, Anderson, you have traveled to this part of the world. You have seen how a lot of these systems work. The hospitals here are -- they're underfunded, they're under-resourced. They're also for the most part private.

So, when a situation like this arises, typically, it's the hospital who is first alerting people. They see an increased number of cases. They let the Ministry of Health know about that. And then the Ministry of Health has to decide if they're going to involve the World Health Organization.

Here in Phnom Penh in Cambodia, it's the Ministry of Health that's sort of calling the shots, so to speak. I can tell you, it's in some ways very strange. The World Health Organization and the hospital where many of these kids are being treated, they're not even really communicating.

You may have heard some disparate numbers, for example, on how many cases there were exactly. That's because these two organizations really aren't communicating. It's the Ministry of Health that is now doing the tests, that is doing these investigations, going into the villages, trying to figure out if there's a bad batch of medications out there. It's really falling on their shoulders.

COOPER: So the bottom line is they don't know how this is being spread from person to person? You say it's not clustering in communities. It's not being spread within households. So I mean, that's one of the big mysteries, is why one child gets it and another child in another village gets it?

GUPTA: Yes, so, you know, these are called sporadic cases. And exactly, you know, the bacteria seems to catch hold of infection. And in some children, and not in others. Or it could be something else. That is some kids are much more susceptible to it. So some doctors made the theory there's more cases out there than we realize, but they're so mild in other kids and maybe even in adults, that they're not recognizing them.

Obviously the kids that we're talking about, 64 of 66, Anderson, as you know, have died, they were the most serious cases of all.

COOPER: It's really alarming. Sanjay, I'm glad you're there. Appreciate you talking to us tonight. Thanks.

We're following other stories tonight. Isha's here with a "360 Bulletin" -- Isha.

ISHA SESAY, CNNI ANCHOR: Anderson, the result of an investigation into Penn State's handling of the Jerry Sandusky scandal will be released on Thursday. Meanwhile, lawyers for Penn State's former president, Graham Spanier, say their client told investigators he was never informed of sexual abuse allegations against Sandusky. Lance Armstrong headed back to court today. He re-filed his lawsuit against the U.S. Anti-Doping Agency, trying to halt its case against him. The agency has accused Armstrong of using performance enhancing drugs. He first filed the suit yesterday, but a judge dismissed it.

In Florida, officials tracked down and killed an 11-foot alligator that attacked a 17-year-old boy yesterday, biting off his arm. Kaleb Langdale said he knew if he didn't give the gator his arm, the animal probably would have killed him.

And take a look at this. It might give you the chills. It's an airport x-ray screening image of a 5-month-old baby boy hidden inside a bag. An Egyptian couple tried to enter the United Arab Emirates but didn't have a visa for the infant, so they tried to sneak him in. The child is fine. The parents have been charged -- Anderson.

COOPER: Time for tonight's "Shot." I'm not sure exactly what to say about this one. You're just going to have to watch it.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Ow. Ow. Ow. Will you quit? I'm ready for some Hannah Montana coon repellant. Bite me now. I don't think so.

(END VIDEO CLIP)

COOPER: I don't even know what to say about that. I don't even know what's going on. He sprayed himself with something.

SESAY: Well, yes.

COOPER: Yes, I don't know.

SESAY: Yes, you know what, sometimes...

COOPER: Yes.

SESAY: Yes.

COOPER: Let's move on, shall we?

SESAY: Yes.

COOPER: OK. A number of high-profile Hollywood stars have embraced the Church of Scientology over the years. That's no accident. But has Scientology's pursuit of big celebrities helped or hurt the church? We'll take an in-depth look, ahead on 360.

(COMMERCIAL BREAK)

COOPER: Gary Tuchman's been investigating another religious school facing allegations of abuse. What he found is going to shock you: young kids, students who say they were forced to panhandle in subways and streets. What do school officials have to say? Well, Gary's report is next. (COMMERCIAL BREAK)

COOPER: Tonight, a new report in our "Ungodly Discipline" series. Gary Tuchman has been investigating another religious school facing allegations of abuse. But this time, there's another layer to the story entirely.

In addition to allegations of physical abuse, there's evidence that this school has been fleecing taxpayers at the same time and, as if that weren't bad enough, its students are also allegedly being forced to panhandle when they should be studying. Here's Gary's report.

(BEGIN VIDEOTAPE)

GARY TUCHMAN, CNN CORRESPONDENT (voice-over): Walk down the sidewalk and turn the corner at this BART station, one of the Bay Area subway stations, and you'll see him. A little boy, 6 or 7 years old at most, panhandling, begging for money. But it's not for him or his family. It's for his school. In fact this begging is, in a way, part of the curriculum at the St. Andrew Missionary Baptist Church School in Oakland, California.

This child, whose identity we're protecting, looks like a modern- day version of "Oliver Twist." Standing nearby, an adult companion who's not happy we're there.

(on camera) Can you just tell me your name?

REV. ROBERT LACY, JR., RUNS ST. ANDREW'S: Who are you?

TUCHMAN: My name's Gary Tuchman with CNN. And we want to know why you have children out here begging for money at this subway.

LACY: We're not answering any questions.

TUCHMAN (voice-over): But we found out who the man is. He's Reverend Robert Lacy Jr. He and his father are the people who run St. Andrew's, the school whose children are regularly spotted hustling for money at subway stations. So why are they doing it? Where is the money going?

LACY: If you have any questions, you can give them to us in writing.

TUCHMAN (on camera): OK, but why can't you answer that question now, sir? I think children should be home during their homework during the school year, not begging commuters for money. This poor little boy should be doing his homework.

(voice-over) Yolanda Bailey had three children at St. Andrew's, and she pulled them out.

YOLANDA BAILEY, MOTHER: To me, it's just like a big slave camp.

TUCHMAN: Bailey said she was told her kids were doing fundraising. She says no one told her they were begging.

LA'ASIA HOLT, FORMER STUDENT: Me and my little bear went with the pastor. He told us that if we didn't make $50, we would stay there until we did.

TUCHMAN: Catherine Joiner says she pulled her son Charlos out of the school, where she paid $3,000 a year in tuition. Charlos says he was required to panhandle for hours nearly every evening.

(on camera) You got hungry. You got thirsty. And they didn't bring food or water with them?

CHARLOS STEWART JR., FORMER STUDENT: I couldn't even sit, sit down.

TUCHMAN (voice-over): Those are not the only unseemly allegations against the father and son ministers. Yolanda Bailey said her older child was struck by the Reverend Lacy Jr.

Y. BAILEY: He hit my son on the top of the head with a book.

TUCHMAN: Her younger son said he was hit several times.

(on camera) And what did he hit you with?

UNIDENTIFIED MALE: Belt and spoons.

TUCHMAN: A belt and spoons?

(voice-over) Meanwhile, Charlos says he was locked in a second- floor classroom because he had talked in class and wasn't allowed to use the bathroom. So he says he climbed out on this second-story window ledge to escape.

STEWART: I didn't want to do it, so I tried to come in, and I slipped on the ledge, and I fell, and I -- I broke my foot in five places.

TUCHMAN: This is a picture shortly after Charlos went to the hospital, and these are the medical reports. Charlos's mother says the school denied he fell out of the window.

CATHERINE JOINER, MOTHER: I just thank God that he landed on his feet. He could have -- there's no doubt that he would have been dead, had he fallen head first.

TUCHMAN: And there's more to say about the school. St. Andrew's has declared it has 195 students. The more students, the more federal taxpayer money received. The school has cashed in more than $220,000 taxpayer dollars over the last five years.

Will Evans is a reporter with California Watch, a nonprofit media organization that has been investigating the school.

(on camera) They say in official filings they have 195 students. Your finding is how many students go to that school? WILL EVANS, REPORTER, CALIFORNIA WATCH: They definitely -- under 30 at any given time, and sometimes much fewer, as few as 10.

TUCHMAN: Is there anyone who carefully looks at the forms schools fill out saying the number of students they have?

EVANS: No.

TUCHMAN (voice-over): The Oakland Unified School District is the entity doling out the money. It admits it has blindly trusted schools like St. Andrew's. Noel Gallo has been on the board 19 years.

NOEL GALLO, OAKLAND UNIFIED SCHOOL DISTRICT: It's very difficult for me to stand here and make excuses, because it happened.

TUCHMAN (on camera): Is there a chance that St. Andrew's will receive more taxpayer money through you?

GALLO: Absolutely not. They will not...

TUCHMAN: Zero?

GALLO: Zero funds.

TUCHMAN (voice-over): Back at the BART station...

(on camera) So let them take the picture of the transaction taking place. You have no right to put that up there. This is a public place. Put that down.

LACY: We're not public.

TUCHMAN: Sir, this is a public place. If people are giving money to your children, we're allowed to film it.

Reverend lacy told me at the subway station that if I e-mailed him questions, he'd provide me with answers. So I did. But he didn't, which meant the next stop was coming to the church. I knocked on the locked door. I know there are people inside. But no one wanted to say hello.

(voice-over) But just as we were about to leave, we ran into Reverend Lacy on the street.

(on camera) Regarding these allegations about children in the subway station, about the abuse allegations, about you taking too much taxpayer money, what's your response to all that?

LACY: We're honest people. We're law-abiding citizens. We have committed ourselves to do God's service here in this community. And that's what we've been doing, and that's all we have to comment at this time.

TUCHMAN: But no specific answers to those allegations?

LACY: No, no, no answers to that. We're praying people. If you don't mind, we'd just like to say a prayer with you here right now.

TUCHMAN (voice-over): And his prayers were the last words he said to us.

(END VIDEOTAPE)

COOPER: Gary, I mean, why would officials with the BART transit system allow these little kids to be panhandling in the subway, watched over by an adult?

TUCHMAN: Well, BART, like many transit systems in the United States, Anderson, celebrates the First Amendment and likes to give permits to fundraising groups.

That being said, there appears to be momentum now to change their policy so groups like St. Andrew's can no longer do this.

As a matter of fact, what we found out from one board member, and this is through our partners at California Watch, the nonprofit journalistic group that's done a great job at exposing this church, one board told them, quote, "We don't want to be in a position to alloy child exploitation anymore."

COOPER: What's amazing to me about this report and also, you know, what Drew Griffin did on these charities that, you know, the money's not going to where they say it's going, is that, if these people had nothing to hide, they would -- you would think they would invite you in and explain what was going on, explain their philosophy.

And yet they're standing in a public place and trying to block your camera and refusing to answer questions. I mean, is this church being investigated by the authorities? Because they're certainly not giving any answers about why they're having these kids do this.

TUCHMAN: Right. I mean, first of all, that's what was so funny about this. The Reverend Lacy said, you know, this isn't a public place. There's no more public place than a subway station.

So that being said, there is an investigation taking place. Lots of scrutiny. The Oakland school board has told the state about it. The state is investigating these federal tax allegations. They've also given a file to the D.A.'s office in Alameda County, to child welfare experts to investigate two different things: the abuse allegations, and also, what we know is the panhandling at the subway station.

COOPER: Good reporting, Gary. We'll continue to stay on it. Thank you.

In other news tonight, the divorce of Tom Cruise and Katie Holmes. A public relations challenge for the Church of Scientology. Yet, it continues to recruit celebrities. We're going to look into connections to Hollywood and the church when "360" continues.

(COMMERCIAL BREAK) COOPER: The Tom Cruise and Katie Holmes divorce, which was settled yesterday, has once again put the spotlight on the Church of Scientology. While it's unknown if Katie Holmes, who was raised Catholic, ever joined the Church of Scientology during their five-year marriage, Tom Cruise, who's been one of the biggest box office draws in Hollywood, is also one of Scientology's high-profile members as well as one of the biggest boosters and defenders.

Turns out, since the earliest days of the church, Scientology has always had Hollywood stars in its sites. Kareen Wynter reports.

(BEGIN VIDEOTAPE)

TOM CRUISE, ACTOR: Being a Scientologist, you look at someone and you know absolutely that you can help them.

KAREEN WYNTER, CNN CORRESPONDENT (voice-over): The Church of Scientology's close connection to celebrities like Tom Cruise is no accident. Scientology founder L. Ron Hubbard believed celebrities could boost the church's fortunes.

KAREN PRESSLEY, FORMER SCIENTOLOGIST: Hubbard wrote a policy years ago back in the '70s that the way to reinvigorate the church was to recruit big names. The purpose of it is to add credibility to the church's beliefs and get more people to join.

WYNTER: Ex-Scientologist Karen Pressley ran the church's celebrity center in Hollywood in the late 1980s before quitting Scientology in 1998. She says priority one was to pull in stars.

PRESSLEY: We lived and died over it.

WYNTER: Pressley told us in the '80s her team courted Demi Moore and Brad Pitt to no avail. They had better luck with another rising star.

(on camera) How big a fish was it to reel in Tom Cruise?

PRESSLEY: It was huge. I mean, there is no -- is there a bigger name than Tom? Than T.C.? We called him T.C.

WYNTER (voice-over): T.C. Became a VIP in Scientology, in the church's mind, casting a glow with his star wattage. That earned him a salute from Scientology's leader in this video that leaked online.

But aligning itself so closely with celebrities has come at a price for the Church of Scientology. For every plug from another Scientologist like John Travolta...

JOHN TRAVOLTA, ACTOR: I think it's the most important movement on the planet.

WYNTER: ... has come an unflattering headline. And for every shout out from Tom Cruise...

CRUISE: I think it's a privilege to call yourself a Scientologist.

WYNTER: ... there's been a cringe-worthy moment.

CRUISE: Do you know what Adderall is? Do you know Ritalin? Do you know now that Ritalin is a street drug? Do you understand that?

MATT LAUER, The difference is...

CRUISE: Matt, Matt...

LAUER: ... this one...

CRUISE: Matt, I'm asking you a question.

WYNTER: A haggard Cruise appeared on NBC's "Today Show" in 2005, famously debating Matt Lauer over psychiatric drugs, an issue important to Scientologists.

LAUER: Clearly, you've done the homework, and you know the subject.

CRUISE: And you should. And you should do that also. Because just knowing people who are on Ritalin isn't enough. You should be a little bit more responsible.

WYNTER: And the couch-jumping episode on Oprah, in which Cruise proclaimed his love for Katie Holmes, made the actor, to many people, an object of ridicule.

Now, the sudden implosion of his marriage to Holmes has created another public relations problem for the church.

PRESSLEY: It's without a doubt a PR nightmare. I mean, to have their top two celebrities having marital problems to the extent that Katie wants this divorce is huge.

WYNTER: Scientology prides itself on providing couples with communication tools to succeed at marriage. The church's celebrity center Web site states, "Whether applied to marital or personal relationships, to one's family or career or simply one's personal peace of mind, Scientology changes conditions for the better."

Pressley says the Cruise/Holmes split pokes a hole in that claim.

PRESSLEY: This is Tom's third divorce. What does that say about a Scientologist, a senior level Scientologist, like Tom, T.C., what does it say about his ability to succeed in relationships? I think it's a huge statement.

WYNTER: Spokeswoman Careen (ph) Powell told CNN, "With respect to Tom Cruise and Katie Holmes' divorce, the church has no comment. Please direct any questions to their representatives. This is and always was a private family matter, and the Church will continue to respect their privacy."

The end of the Cruise/Holmes divorce drama may come as a relief to the church, but it's facing other challenges. Several former prominent Scientologists have taken to waging a vigorous online campaign against the church. Pressley says these high-level defections have pushed Scientology to a crisis point.

PRESSLEY: I think it's probably the most fragile that it's ever been. I think that the church is hanging by a thread.

WYNTER: A church spokeswoman begs to differ, telling CNN, quote, "Every church has its detractors, and these stories come at a time of tremendous church growth."

Kareen Wynter, CNN, Los Angeles.

(END VIDEOTAPE)

COOPER: In response to our questions about the relationship of the church and celebrities, just before we went on the air tonight, spokeswoman Karen Poe (ph) sent us a statement, saying in part, "The Church does not speak about the beliefs and practice of parishioners," adding, quote, "Scientology appeals to men and women in all walks of life, as do other major religions. The perception that it uniquely appeals to those in the arts is a misperception conveyed by the media. There are as many reasons individuals turn to Scientology as there are parishioners, but generally Scientology offers answers to age-old questions, spiritual awareness and greater ability, because it provides tools they can use in life."

Apparently, jonesing for junk food is a major news story now in Canada. Just how far do these barbecue bandits go to satisfy a chip craving? "The RidicuList" is coming up next.

(COMMERCIAL BREAK)

COOPER: Time now for "The RidicuList," and tonight we're adding the barbecue chip bandits. They allegedly struck in Canada last month.

The local news was all over -- and I do mean all over -- the case at the time, but it's only now going viral in the U.S. And I should warn you, the depth of reporting on this story is rivaled only by Woodward and Bernstein, so we should probably just start at the beginning.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: In this quiet Saanich neighborhood, people like their chips.

UNIDENTIFIED FEMALE: All kinds. We like those lime -- the lime- flavored ones, potato chips, taco chips, cheesies.

(END VIDEO CLIP)

COOPER: Oh, yes, the cheesies. It only gets better from there, because it wasn't just the local news that got involved.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: These are very specific and hard to obtain barbecue chips.

(END VIDEO CLIP)

COOPER: That's right. Police officers responded to an emergency call from a resident, who, to be fair, likely thought something sinister was afoot.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Apparently she lives alone and was awoken by her growling Chihuahua.

(END VIDEO CLIP)

COOPER: Look, I have said it before, nothing gets by a Chihuahua. By the way, it turns out it wasn't a dangerous intruder, but -- wait for it -- two drunk college girls.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: The women were walking home from a night of drinking when something caught their eye: an open garage just like this one. And what did they see inside? Zeller's brand barbecue potato chips.

(BEGIN VIDEO CLIP)

COOPER: Mmm. Wait, what's the big deal about Zeller's brand chips? Actually, you know what? Forget it. Because surely the reporter has better things to do than to explain that.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: You can find them at Zeller's, but only for a limited time. In October, Zeller's is closing its doors for good, meaning it's in-house potato chip brand truly could become harder to find, perhaps making it somewhat of a hot commodity.

(END VIDEO CLIP)

COOPER: I don't know, that sounds like a lot of speculation. Can we check in with the officer?

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I haven't tried these for myself. But my understanding is that particular brand of barbecue is quite tasty.

(END VIDEO CLIP)

COOPER: Quite tasty. OK. Then I stand corrected. Wait, what is that? What is that? I'm told we're getting more information on what the bandits did inside the garage. (BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: It appears that the effervescent chip package in the open garage just appeared too yummy to pass up for two highly - (END VIDEO CLIP)

COOPER: Look, you had me at effervescent. I'm now fully committed to this story. I just wish the reporter could give us a better understanding, a better look, really, at what exactly happened.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: So they took the chips and started walking, but they didn't get far. The barbecue bandits were busted by the homeowner.

(END VIDEO CLIP)

COOPER: I love the eating demonstration.

But look, I'll be honest: this is getting a little too tense for me. I'm afraid to even ask how it all turns out.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Apparently the chips have been accessed, and there have been some illicit chip tastings.

(END VIDEO CLIP)

COOPER: Damn you, chip bandits. What in the name of Zeller's store brand are we going to do with you? I mean, should we really cut you some slack?

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: These are first-time chip offenders.

(END VIDEO CLIP)

COOPER: Glad he has a sense of humor about it, because frankly, my nerves are fried. So consider yourselves on notice, barbecue chip bandits. I'll defer to the Canadian wheels of justice, but for now, the trail of crumbs leads right to "The RidicuList."

That does it for us. Thanks for watching. "ERIN BURNETT OUTFRONT" starts now.