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Egyptians Queue for First Presidential Election Ever; A Million Counterfeit Parts Found in U.S. Military Equipment; Male Shiite Pilgrims Kidnapped in Syria; Iran Close to Signing Nuclear Deal with P5+1 Group

Aired May 23, 2012 - 08:00:00   ET

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


KRISTIE LU STOUT, HOST: I'm Kristie Lu Stout in Hong Kong. Welcome to NEWS STREAM where news and technology meet. We begin in Egypt where history is being made as millions of Egyptians join in the country's first presidential election since Mubarak's ouster.

It started out so well, but the price of Facebook shares continues to fall.

And just a few days ago, he was on top of the European football world. And now Didier Drogba could be on his way to play in China.

Now millions of Egyptians are doing something they have never done before, they are voting in a free and democratic presidential election. And for the first time the outcome is unknown. And both secular and religious candidates are taking part. Now that makes today very different from the votes that occurred under Hosni Mubarak. His 30 year grip on power finally came to an end last year. He was forced from office by huge public protests.

But many Egyptians feel their hard fought revolution remains unfinished. Now for one thing, Mubarak's fate has yet to be resolved. He is on trial, charged with corruption and allegedly ordering the deaths of protesters. A verdict is due on June 2nd.

And recent demonstrations in Egypt had been made against the military. And this graffiti, it shows Mubarak's faced combined with that of military ruler Hussein Tantai, the Supreme Council of the Armed Forces has ruled ever since Mubarak's ouster. It has pledged to turn over power to a civilian government by July 1. But many Egyptians do not trust the military will freely give up its privileges.

Now these other issues are also plaguing Egypt. Now officials are still working on the country's new constitution. The economy looks uncertain as tourism has taken a huge hit. And some Egyptians fear the rise of islamists who won the most seats in the lower house of parliament.

Now we'll go live to Egypt soon, but turning now to Syria where a dozen Lebanese Shiite pilgrims have been kidnapped. Now the women accompanying them, well they were allowed to go free, and they were returned to Beirut. The men were abducted as they crossed the Turkish border into Syria after a pilgrimage in Iran. Now Lebanese and Syrian state media say the Free Syrian Army is behind the kidnapping, they charge the opposition fighters deny.

The abductions spark protests in Lebanon calling for the release of the men.

And the fighting in Syria has spilled over into Lebanon, pitting supporters of Syrian president Bashar al Assad against opponents.

Now Rima Maktabi joins me now live from Beirut with more -- Rema.

REMA MAKTABI, CNN INTERNATIONAL CORRESPONDENT: Kristie, for many as soon as the uprising erupted in Syria it was only a matter of time before things escalated on the ground in Lebanon. Lebanon and Syria have been two countries with long historic ties. And this is why any violence there will spill over.

(BEGIN VIDEOTAPE)

MAKTABI: Mention Lebanon and Syria comes to mind. Until the collapse of the Ottoman empire after World War I the entire region was considered greater Syria. And Beirut was run by Damascus.

MARK SIROIS, POLITICAL ANALYST: It's only recently that Lebanon was created as an independent state. This was a place where the Syrian opposition could come and be safe and maybe plan to regain power from whoever happened to be ruling Syria at the time. Until the Assad family took over Syria, there was a coup almost every time you turned around.

MAKTABI: Since the early-60s, the Assad family has tried to keep a tight grip on its neighbor. Syria's influence peaked during Lebanon's bloody civil war from 1975 to 1990. Syrian troops moved in ostensibly as peacekeeper, deployed across the country, and dug in for a long stay.

But things changed in 2005. Former Lebanese Prime Minister Rafik Hariri was assassinated in February. Anti-Syrian elements accused Bashar al-Assad's regime of killing Hariri. Weeks of widespread street protests followed. And in April, Syrian troops withdrew from Lebanon yielding to popular demands and international pressure.

SIROIS: Now since all these protests in Syria against the Assad regime what you've seen is Lebanon regaining its past roles as a haven for the Syrian opposition, but also a lot of people are saying, is a platform for the infiltration of men and guns.

MAKTABI: President Bashar al-Assad has often warned neighboring countries that violence in Syria will spill over sooner or later. On Wednesday, he was interviewed by Russian TV in Damascus.

BASHAR AL-ASSAD, SYRIAN PRESIDENT (through translator): It's becoming clear that this is not spring, but chaos. And as I have said if you sow chaos in Syria, you may be infected by it yourself. And they understand this perfectly well.

MAKTABI: Within days of his comments, the clashes in Lebanon began escalating.

(END VIDEOTAPE)

MAKTABI: Something that the Syrian allies will stare troubles in Lebanon just to divert attention, international attention from the Syrian regime which is under pressure, but others think that anyway the situation is volatile in Lebanon, Kristie.

LU STOUT: All right. Rima Maktabi joining us live from Beirut. Thank you very much indeed for that.

Now let's go back to Egypt now where many are voting in historic presidential elections. Ben Wedeman has been covering Egypt's recent transformation from the very beginning. And he joins us now from a polling station in Cairo. And Ben, describe the scene there.

Hi, Ben. It's Kristie in Hong Kong. Can you describe the scene around you?

BEN WEDEMAN, CNN CORREPSONDENT: Well we're in the Septia Secondary Boys School (ph) in the northern part of Cairo. And people here have been waiting for quite awhile to go and vote. Apparently here the process -- yes, Kristie, yeah well we're at the Septia Secondary Boys School (ph) in northern Cairo where there's been a little bit of confusion about the voting process. Voices were raised and now it appears a bit of order has been restored.

But this is the time, and we've been to several voting stations around Cairo, where we've seen anything that approximates complications. By and large the process of voting is going ahead in an orderly manner. Most people having patience to wait for a little while to get the chance to vote.

But and large, enthusiasm. People are enthusiastic about this. In fact, we started the morning at one polling station where a 70-year-old woman who had waited sitting on a plastic chair for two-and-a-half hours for the voting to begin she said she wasn't voting for herself she was voting for her children and her grandchildren. And this is really the first opportunity she had to vote in a free election as is the case with almost everybody here.

The feeling is that Egypt is turning a corner, that finally people are being aloud to have a say in the running of their country -- Kristie.

LU STOUT: Indeed. Ben Wedeman joining us live there. Apologies for the technical disruption there. It's great to have Ben reporting there live on the scene in this landmark event.

Now you're watching NEWS STREAM. And high level talks are occurring about Iran's nuclear ambitions. Now Tehran is at the table with world powers. And we'll have the latest from those talks in Baghdad.

Now Facebook shares, they have had a stumbling start since last week. And now there are allegations of maybe a botched start.

And moving to a new playing field. Chelsea striker Didier Drogba is reportedly in negotiations to play on a team in China. All that and more still to come on NEWS STREAM.

(COMMERCIAL BREAK)

LU STOUT: Welcome back.

Now Iran and six world powers have gathered in the Iraqi capital Baghdad for a key nuclear summit. Now they are meeting to discuss Iran's controversial nuclear program. Officials from iran are talking with the P5+1 group. Now that is the five permanent members of the UN Security Council and Germany.

Now the main aim of the meeting is to persuade Iran to shut down its higher grade uranium enrichment program which the west fears could be used to make an atomic bomb.

Now the talks come a day after the head of the UN nuclear watchdog said he expects Iran to sign a deal over nuclear inspections soon. Mohammed Jamjoom is in Baghdad to tell us more.

And Mohammed, how are the talks going so far?

MOHAMMED JAMJOOM, CNN INTERNATIONAL CORRESPONDENT: Well, Kristie, here in Baghdad's international zone, the first plannery session, the meeting of the day is still going on. It's expected to break for lunch at some point in the next 20 to 30 minutes. Then there will be more meetings later in the day.

The big question will be how much progress can they make today? The officials that we've spoken with so far, very optimistic that these talks have taken place so soon after the talks that happened in April in Istanbul. And they're hoping to really lay a foundation so that more talks can happen within the next week and months to come. They want it to be a regular thing.

Now we wanted to know more about the deal that's being offered, the package that's being offered right now inside that room. We spoke a little while ago to Michael Mann, he's the spokesperson for EU high representative -- EU high representative spokesperson Catherine Ashton. And here's what he had to tell us about what was being offered.

(BEGIN VIDEO CLIP)

MICHAEL MANN, CATHERINE ASHTON'S CHIEF SPOKESMAN: Catherine Ashton has put a new package of proposals on the table to the Iranians. This is to address the international community's concerns about the nature of their nuclear program. Obviously you have various UN Security Council resolutions and reports from the International Atomic Energy Agency that have found suspicions that they may be developing a military program. So our proposals on the table address those concerns, obviously 20 percent uranium enrichment is one of the issues that's addressed.

We hope that they will come back and react positively to those proposals that we've made and that we can really talk about the substance and get things moving.

(END VIDEO CLIP)

JAMJOOM: Now we wanted to know if one of the key points of this proposal is that the Iranians start exporting whatever enriched uranium that's reached that 20 percent level, that if the Iranians are being asked to do that. Mr. Mann said that he wouldn't get into those details at this stage.

We did catch up with a member of the Iranian delegation just a short while after. He said they still wanted to know what was in the package, but it wasn't clear just yet -- Kristie.

LU STOUT: So a lot of optimism there at these talks, why is the Iranian side playing ball, as it were? And what is the most probable outcome of these talks?

JAMJOOM: Well, the Iranians clearly sending a signal to the west and to the rest of the world that they do want to talk right now, that they're happy to be having these meetings.

One of the more interesting points that we've found here today speaking to some of the officials, they're saying that even though it's a good thing what happened with the IAEA and the progress that was made and the hope that they will reach an agreement, officials here with the P5+1 countries saying that's not necessarily linked to what's going on here today.

They say that as far as the IAEA agreement, that deal was the past. Iran's obligations to the IAEA it's great of they're met, it's great if progress is being made, but what they want to do here today really isn't connected. They want to make sure they can build on the talks that they had last month. They want to make sure they can have these in regular intervals. And they want to make progress. And they want to come to some sort of an agreement, although at this stage it's not yet known if these talks will end today, if they will continue until tomorrow, what exactly can be agreed to.

Still, a lot of questions out there at this hour -- Kristie.

LU STOUT: Also, the location of these talks, why are they being held there in Baghdad?

JAMJOOM: Well, Iran wants to show the strength of their relationship with Iraq. And Iraq wants to show the world that they are in a much better position security-wise. They were happy to have the Arab League here just a couple of months ago. They're happy to be hosting these talks.

When these talks were first announced that they were being hosted here in Baghdad, a lot of people didn't think that could be pulled off. So it seems to be a success for the Iraqi government that this can be pulled off.

But even more importantly for the Iraqi government, they do want to be seen as more of a player in this region. And they want to be seen as a go- to country as far as diplomacy and trying to mediate disputes, especially between the U.S. and Iran -- Kristie.

LU STOUT: All right. Mohammed Jamjoom reporting live from Baghdad, thank you.

Now up next, it's the Facebook event that may be bombing. Share prices on the social network, they just keep dropping. And now it looks like the lead underwriter on the IPO has got another problem to deal with. We'll explain after the break.

(COMMERCIAL BREAK)

LU STOUT: Coming to you live from Hong Kong, you are back watching NEWS STREAM.

Now some are calling it the Facebook flop. And the social networking site's debut as a publicly listed company has certainly been a wild ride.

Let's take a look at the company's share price. Now after an initial 11 percent pop at the open, Facebook stock closed on Friday just over half of one percent above the offer price at $38. Now fast forward to Monday, and the price dropped by around 11 percent, ending the day at just over $34. And on Tuesday, the downward spiral continued, dropping another 9 percent to close at $31. Now that is a slump of 18 percent in Facebook's share price in three days.

But the problems don't end there. Most regulators are investigating a report that lead underwriter Morgan Stanley divulged sensitive information about the company's earnings prospects to select clients ahead of its listing on the NASDAQ.

Now with more, I'm joined now by Felicia Taylor in New York. Felicia, did Morgan Stanley issue guidance to some of its investors? What is the bank saying?

FELICIA TAYLOR, CNN CORRESPONDENT: Well, they aren't saying that that's what they did. I mean, that's the review on behalf of some of the regulatory agencies such as the SEC and FINRA, which is the Financial Industry Regulatory Authority.

Morgan Stanley, however, is saying and literally after Facebook released a revised F1 filing on May 9 providing additional guidance with respect to business trends, a copy of the amendment was forwarded to all of MS's institutional and retail investors, that means not just the big boys, but everybody that was looking to purchase part of the IPO. So that's a very significant -- significant thing. Now it's still under review, which means especially now that the Massachusetts securities investigation is also taking part in this.

And I've spoken to a number of different people on all sides of this - - a regulator, a lawyer who follows regulation, a broker, money manager, and frankly they didn't -- they all agree that while this you know may be a question of regulatory concern and whether or not Morgan Stanley was in the best interest of the markets and its customers, it's not necessarily a criminal wrongdoing or anything illegal that's happened here. So in terms of a penalty or a fine that may be imposed, it'll be marginal for Morgan Stanley. We're talking maybe $10 to $20 million. It's not going to result in necessarily any jail time for individuals involved with the IPO.

LU STOUT: Thanks for clarifying that. So is the main issue here the size of the IPO? Was it simply too big to begin with?

TAYLOR: Absolutely. There's no question about it. I mean, in terms of valuation for this company. If you take a look at an Apple or a Google in comparison. I mean, this is $100 billion valuation. That's enormous. And 420 million shares, 80 million of this were traded at the open, it's an enormous valuation and frankly too big.

And so, some people are questioning whether or not that should have been where it was priced. And they increased that pricing, as you well know, toward the last few days in the last week to trade somewhere closer to that $38, even $42 level. And if you take a look at the stock performance, it's actually down 26 percent from that high that it reached at $42 a share.

I should point out, though, that right now the stock is up about three-quarters of one percent at $31.23. So there are buyers for Facebook. The question, though, is where is that revenue growth going to come from? Like I said, even Facebook itself acknowledged on April 23 that they have not been able to increase their ad revenue quarter on quarter in conjunction with its growth in subscribers.

And as we know, GM came out last week and clearly they knew there was going to be an IPO and said that it was removing its ad because the revenue growth just wasn't there. So that's a problem, Kristie.

LU STOUT: That's right -- that's right. And that was a sign that a lot of investors took to heart even though they only invested, what, $10 million in advertising on Facebook.

Now you mentioned the comment there from Morgan Stanley, its comments on the IPO. What kind of questions is Facebook have to answer at this point? And also NASDAQ? Has the NASDAQ CEO weighed in on this?

TAYLOR: Well, the NASDAQ certainly has acknowledged that there were problems at the open. But they -- you know, because when -- when it seemed that there wasn't going to be as much demand at the IPO then obviously there are cancellation orders and people step in and they reprice them. So what they weren't able to do to match those new price crosses and so that's where the problem sort of happened for the NASDAQ. And they've admitted that there was a problem. They said they thought they had a solution, but had they known that the solution they had in place wasn't going to work, they would have actually delayed the IPO.

From Facebook we have heard absolutely no commentary so far, which frankly is in my humble opinion -- not that anybody is asking me -- we should hear from Facebook at this point. You know, they need to reassure the investor out there. And this is the only thing that matters. Nobody made anybody buy Facebook shares. What they need to know now is where the revenue growth is going to come from. They need some kind of assurance if they want this stock to be successful in the coming quarters, how are they going to make money? And that's the number one question that investors want to have answered.

LU STOUT: Yeah, we'll be looking out for how the stock performs today and also if we're going to hear anything from the company. Felicia Taylor joining us live from New York lending clarity on the story. Thank you very much indeed.

Now the Miami Heat, they have been touted as the favorites to win the NBA title since the season started, but their inconsistent form has raised questions whether they can do it. Pedro Pinto joins us with the latest from the playoffs and Miami's game last night -- Pedro.

PEDRO PINTO, CNN SPORTS CORRESPONDENT: Hey, Kristie. Well, they certainly played like title contenders on Tuesday night in game 5 of their series against Indiana. The Heat destroyed the Pacers winning by a whopping 32 points. The Heat were just firing on all cylinders in Miami. And you won't be surprised to hear that it was LeBron James and Dwayne Wade doing most of the damage.

LeBron early on with the steal. And he knows exactly how to finish at the rim at the other end. He wasn't done -- right at the end of the first half James connect with Dwayne Wade and beats the buzzer. The Heat lead by 9 at halftime. After the break, more James and Wade. The Heat shooting a playoff franchise record 61 percent, Wade finished the game with 28 points. LeBron had 30. Miami up by as much as 37 at one point. And they win easily 115-83. They lead the series 3-2.

Topping football news, David Villa, Spain's all-time leading scorer will miss Euro 2012. The Barcelona star has not been able to recover from a broken leg he suffered back in December last year. On Tuesday, the 30- year-old star ruled himself out of Euro 2012 saying he's not yet fully fit.

Villa has scored 51 goals in 82 nationals for Spain, helping them to victory at Euro 2008 and of course the World Cup in 2010 as well. He joins another Barcelona player, Carlos Puyol on the sidelines. The defender is also injured and will also miss the tournament this summer.

Good-bye London, hello Shanghai: Chelsea striker Didier Drogba is negotiating a deal to move to the Chinese Super League. The revelation was made by the owner of Shanghai Shenhua, the club which recently signed Nicolas Anelka. The club owner, Zhu Jun told reporters that negotiations with the player are continuing just as planned. Shanghai are set to be offering Drogba a deal worth around $300,000 a week. The 34-year-old's contract with Chelsea runs out next month. He told club officials he was ready for a new challenge.

(BEGIN VIDEO CLIP)

DIDIER DROGBA, FRM. CHELSEA STRIKER: Winning the game, winning this final was the key -- was the key. And not me scoring the penalty, the winning penalty, but winning the game was the turning point, I think, that's why I decided -- I said we made a story all together and I want people to remember that. And I think it's the best time to move on.

(END VIDEO CLIP)

PINTO: He's moving on, and Shanghai could be his next stop. We'll continue to follow this story, Kristie. Back to you.

LU STOUT: Yeah, Pedro, just how common is it to see players near their peak move into a smaller league like China?

PINTO: Well, it's becoming a trend recently over the last year, year- and-a-half because China is an emerging market. And when I talk about emerging market, I mean money. If there's money, players will go, Kristie. You won't be too shocked to hear about that.

I'll tell you about some guys who have moved over there in the recent past. Dario Conca was kind of the first big name, the Argentine playmaker he helped Fluminense win very important titles in South America. He moved making around $15 million a year. He could never get that kind of contract, even if he had come to Europe.

Then of course there was Nicolas Anelka, I mentioned him when I was talking about Drogba. He's also making around $15 million to $16 million a year. He moved over there as a player, of course. He's since become a player-coach, because the situation there in Shanghai is really a little unstable at the moment. They're in last place in the league.

And then also I wanted to tell you about one of the most famous coaches in European Football Marcello Lippi. He got a deal worth around the same ball park figure to coach a team over there.

So you're talking about a lot of money that's being dished out at the moment. And big names will head out there for that. It'll be curious to see whether Drogba will move over the next week. And what kind of deal he's going to get. We're hearing about $20 million a year. If you ask me, it's a little bit of a shame. It would be exciting for China, but I still think he still has a lot to offer at the top level of football. And he still had another season or two definitely in him in the Champion's League.

LU STOUT: Yeah, but the big money in China can be very enticing. Pedro Pinto joining us live. Thank you.

Now you're watching NEWS STREAM. And coming up next, it is one of the most important days in Egyptian history. Egyptians, they go to the polls in their first free and fair elections. And we'll be live in Cairo.

Now a huge military exercise is taking place in Jordan. Thousands of multinational troops are training together. And it could not come at a more crucial time.

(COMMERCIAL BREAK)

LU STOUT: I'm Kristie Lu Stout in Hong Kong. You're watching NEWS STREAM. And these are your world headlines.

Now high level talks are being held in Baghdad into persuading Iran to scale back its nuclear ambitions. Iranian officials are meeting with the P5+1. Now the group includes the five permanent members of the UN Security Council and Germany. It comes as the UN's nuclear watch dog says Iran may be close to signing a deal on inspections.

Now Russia has test fired a new prototype ballistic missile. A military spokesman says the intercontinental rocket is capable of breaching defense systems now being developed by NATO. Now the launch comes just days after NATO formally activated the first stage of a missile defense shield. Now Moscow is opposed to the shield, concerned that it might threaten Russia's nuclear arsenal.

U.S. regulators are looking to claims that Morgan Stanley shared information about Facebook's prospects with select clients just before the social networking site's IPO. The U.S. investment bank was the lead underwriter for Facebook's stock market debut. And Morgan Stanley denies any wrongdoing.

Now two days of voting are underway in Egypt in what are regarded as the country's first truly democratic presidential elections. Now 13,000 polling stations are up and running to cater to Egypt's 50 million eligible voters. Around a dozen candidates are running.

And while this is regarded as Egypt's first free election, there are some concerns that it could still not be fair. Now journalist Ian Lee has spent the day with people observing the process. And he joins us now live. And Ian, how do the observers see the vote so far today?

IAN LEE, CNN CORRESPONDENT: Well, so far so good. We've been out with this group called the 6th of April. They have over 30,000 volunteers across Egypt observing this election so far. And we've been talking to them. And they said that so far there's been minor infractions that they've seen, but nothing really to raise an eyebrow, nothing to really cause an alarm. They said so far everything is going smoothly.

But they're definitely, you know, observers. There's been a lot of fear that there's -- that, you know, a lot of rumors that the military could do something to try to rig the election even though the military has constantly denied this. There's the fear of that. There's fear of other groups that might try to interfere.

So they're very much alert. They're very much on guard for any sort of interference. But so far, they say everything is going smoothly.

LU STOUT: Good to hear. So the voting process has been smooth so far.

How many people there are optimistic that this election will result in real change for Egypt?

LEE: A lot of people we've talked to today are optimistic that this will go smoothly, especially when looking back at the parliamentary election there were some minor infractions, but that went fairly smoothly. And I think it is fairly smooth. And I think a lot of people now are expecting that this election will go just as smooth as the last one. So they're hoping that this will happen and that they will have a new president that will finally take control from the ruling Supreme Council of the Armed Forces.

LU STOUT: And what kind of shadow is the ruling military council casting on this vote? And how will they likely react to the election result when it's out?

LEE: Well, one thing that the military has been adamant about is that they will hand over power to the person who is elected to be the next president. And even earlier this month said that if a person wins it outright this election, this round, that they are ready to hand over power immediately. As this process has been continuing, the ruling Supreme Council of the Armed Forces released a kind of some guidelines for the new president. And this has a lot of people worried as well.

So there's a lot of fear that the military might somehow try to hijack this process, or hijack the election even though they are adamant that they are not going to. So it is looming large, because this will be the handover, this will be the transition from a -- the ruling military to a civilian government.

LU STOUT: Ian Lee reporting on the ground, thank you very much indeed for that update, Ian.

Now one of the largest multinational military exercises the Middle East has ever seen is taking place in Jordan right now. It could not come at a more delicate time for the region with continuing unrest in Syria and heightened tensions over Iran. Barbara Starr reports.

(BEGIN VIDEOTAPE)

BARBARA STARR, CNN PENTAGON CORRESPONDENT: Elite Jordanian troops train to assault a compound. U.S. special operations forces practice a night raid. They can take down an enemy target in two minutes.

19 countries have sent 12,000 troops here to Jordan. Commanders say it's all about training, but there are worries unrest in neighboring Syria or tensions over Iran's nuclear program could spark a conflict.

Troops here believe that next time they go to war, it will go together.

MAJ. GEN. KEN TOVO, U.S. ARMY SPECIAL OPERATIONS: The number one takeaway from this exercise is we are creating partnerships and friendships.

STARR: Troops train for what they may face on a moments notice.

TOVO: Aiding refugees in a refugee camp, attacking terrorists, their safe houses, releasing hostages.

STARR: Meet U.S. Army Captain Rory. We can't tell you his full name. We can't show you his face, because Rory still runs a 12 man commando team. But he here says.

CAPTAIN RORY, U.S. ARMY: The training has been eye opening.

STARR: If war was to come here, Navy SEAL Captain Todd Tinsly might be a key player. He already runs a military task force watching the Persian Gulf for trouble from Iran. He says working together isn't just talk.

CAPTAIN TODD TINSLY, U.S. NAVY SEAL: If we got called up to do contingency, I think you would see something similar to what we're doing right now.

STARR: This military exercise is now being watched throughout the Middle East just in case military training becomes a military reality.

Barbara Starr, CNN, Amman, Jordan.

(END VIDEOTAPE)

LU STOUT: Now coming up on NEWS STREAM, in war soldiers rely on their equipment to work. Millions of fake parts have been found in U.S. military equipment. And some say that is putting troops at risk.

(COMMERCIAL BREAK)

LU STOUT: Welcome back.

Now around a million fake parts have been found in U.S. military equipment including helicopters and cargo planes. Now that's according to the U.S. Senate armed services committee which says fake parts from China are flooding into critical military systems and putting U.S. troops at risk.

Brian Todd reports.

(BEGIN VIDEOTAPE)

BRIAN TODD, CNN CORRESPONDENT: A compromised night vision system that could bring down a key anti-submarine helicopter. Bogus parts in the cockpit displays of massive cargo planes that could cause them to crash.

SEN. CARL LEVIN, (D) MICHIGAN: It's just something which must be stopped for the security and safety of our troops.

TODD: The Senate armed services committee chair talking about his panel's investigation inter counterfeit parts on U.S. military aircraft and other equipment. The probe finds more than a million fake parts in that equipment, most of them coming from China.

LEVIN: And they washed them and then they restamped them, put phony numbers on them frequently and sell them right back to the defense industry here. And it is pervasive.

TODD: Like counterfeit memory devices on defense missiles that were actually launched in tests, bogus components that cost American taxpayers millions at a time to replace. The senate reports the Pentagon was unaware that counterfeit parts had been installed in some defense systems until the investigation. The response.

GEORGE LITTLE, U.S. ACTING ASST. DEFENSE SECRETARY: And we take seriously this very important issue. This is something that we've addressed for a number of years.

TODD: The Senate probe didn't identify any single instance where a counterfeit part lead directly to a service member's death or injury, but it's sometimes hard to know for sure. As one Senate staffer told us, a faulty radio or GPS device might lead a unit in Afghanistan to make a wrong turn, come under fire. And the incident might not be traceable back to a part.

I spoke with Robert Atkinson from a prominent technology think tank about China's involvement.

There's are not just anomalies with the Chinese?

ROBERT ATKINSON, INFORMATION TECHNOLOGY AND INNOVATION FOUNDATION: Yeah, this is not just that they happen to be making counterfeit defense parts. The Chinese economy is premised on the whole notion of counterfeits and stealing intellectual property. There are whole districts in Southern China called the Shan Tzu (ph) district that is basically everybody knows it's the counterfeit district. There are whole factories are 10,000, 15,000 people who are just simply making counterfeit goods.

TODD: The report also says the Chinese government refused to grant visas for Senate staffers to travel to China to investigate all this. We tried repeatedly to reach officials here at the Chinese embassy for comment on that and the report's overall findings. We got no response.

Brian Todd, CNN, Washington.

(END VIDEOTAPE)

LU STOUT: And what investigators found when they dug through the supply chain is deeply troubling. Now essentially they were looking for three types of suspected counterfeit parts on U.S. military aircraft. And they found them on this, the SH60B. It's a Navy helicopter that hunts for enemy submarines and assists with surface warfare. In it, investigators found a counterfeit part which compromised the helicopter's nightvision system. And it was traced back to China.

Now the probe also found counterfeit parts in the C-130 Hercules that frequently used to transport soldiers, equipment, and humanitarian aid. Counterfeit parts were found in the systems which monitor the aircraft's performance. It could have caused those systems to go blank. And again, counterfeit part was traced back to China.

Now time now for your global weather forecast. Meteorologist Tom Sater joins us from the World Weather Center -- Tom.

TOM SATER, CNN WEATHER CORRESPONDENT: Hi, Kristie.

Pretty nice in Hong Kong right now. Partly cloudy skies, 27 degrees. A nice little breeze too. But on the grand scale, we've got a lot going on around the Earth. We've got a couple of tropical storms. We've got a sand storm in the Middle East. And we've got a nice warm-up in Europe.

But here's what we're talking about. One system that pushed through Japan, a brief reprieve before the next one moves in. We have heavy rainfall in parts of Vietnam. You see the explosiveness really of the instability in the air. But this is the one system that really kind of stands out, and this is one of our tropical storm systems that does have the potential to become our first typhoon.

In fact, if we take a look at Sanvu here which dropped heavy rainfall in Guam. Even the tail end of the feeder band here, it's still developing some convective activity. But the system is quickly racing to the north. And it's going to really pretty much reach some of the southern islands of Japan. Here's Iwo Jima here. This is the prognosis really, if you have. Even though winds are a 102 kilometers per hour, the water temperatures are favorable. It's not going to undergo any sheer, so it really should rapidly develop. And as you can see in the next 24 hours already up to 120. We'll find it as a good typhoon status here, getting very close to the islands.

In fact, really what direction this moves toward the islands if it passes south or if it passes just about over we're going to find some probably destructive forces with the strong winds here. But this system really starts to get tightly wound.

On the wind profile, you can actually see the core of some of the stronger winds. Now this is going to pick up the surf, some high sees, some storm surge with flooding rainfall.

But we're going to watch this in the next 48 to 72 hours as it continues to have that favorable environment.

Another story, too, has been the heavy amounts of rainfall in some of the provinces in Southern Japan. In fact, this is a satellite derived rainfall estimate. And pretty much in the Guizhou province here we've had estimates of even 300 kilometer -- excuse me, 300 millimeters of rainfall. We had some devastating flooding that had been taking place since Friday. In fact, even video of a home that at 2:50 in the morning, Tuesday morning, it was the torrential rains were just too much for this home made of wood and mud to really hold its structure, collapsing on eight individuals.

It took them until 10:00 the following evening for rescuers to pull out the eight, three unfortunately perished in this collapse, other five went to the hospital.

The rainfall totals will continue to find. We come back, we'll be a little bit further well to the south. But we do have two weather systems. And they're both kicking up the winds a little bit. In fact, currently, 22 kilometer per hour winds in Hong Kong, the system in Japan. The first one that moved out, this is the one that shrouded the environment for the solar eclipse, but they're getting another one that's moving in now.

Much more in just a few minutes. First, let's take a look at your city by city forecast.

And as I mentioned there's quite a bit of activity going on. We'd head to the eastern Pacific quickly for you. This is Tropical Storm Bud. Bud is pretty much going to stay a tropical storm status, however the movement has changed. And the forecast for this now takes it back toward the government of Mexico, very close, Kristie, to that very popular tourist destination of Puerto Vallarta. So in 72 hours even though it's a tropical storm could still cause a lot of damage.

It's been busy here in the weather center.

LU STOUT: Yeah, very busy. Tom Sater, thank you very much indeed for that.

Now if you were in Hong Kong, the difficult decisions that accompany a loved one's death are made even harder, that's because public land is scarce. And families are forced to pay a premium for burial space. Now Ramy Inocencio shows us a less conventional tribute that is becoming popular.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: So I show you my son's room.

RAMY INOCENCIO, CNN INTERNATIONAL CORRESPONDENT: Eva Wu (ph) has kept her son's room unchanged ever since he died a year-and-a-half ago. Arnold (ph) passed away from cancer aged 17.

EVA WU, LOST SON TO CANCER: He said mommy I know what's going on. I'm not afraid of dying.

INOCENCIO: After he died, Eva did for him what she had wanted done to herself in death. From his ashes, she made him into a diamond.

WU: I feel peace. And I feel he's near me.

INOCENCIO: That peace is thanks to Scott Fong, the director of Algordanza says his company is Hong Kong's first and only maker of remembrance diamonds. He didn't plan to be in this business until a death in his family revealed Hong Kong's burial process to be.

SCOTT FONG, DIRECTOR, ALGORDANZA: Very disjointed and chaotic affair. And it seemed to me that you either had to have to know someone or you had to be very, very wealthy.

INOCENCIO: Algordanza was the solution. The company sense ashes from a cremated loved one to a lab at its Swiss headquarters. The carbon is filtered to more than 99 percent purity than exposed to volcanic heat and pressure. In just about 9 hours, a quarter carat diamond is born. Total cost, around $3,000. A two carat costs $37,000. That means they can cost the same or even less than full body burials which run from $2,000 to more than $200,000.

And there's something else to consider. Land is scarce in Hong Kong, including land for this -- cemeteries. That's why the Hong Kong government allows bodies to be buried for a maximum of six years and then they have to be exhumed and then cremated. Diamonds as we know, well they are forever.

But Chinese traditional culture says the business of death is taboo. Even Scott's father discouraged him at first.

FONG: He told me that all the Chinese cultural society would cut off my head.

INOCENCIO: But his father came to accept the idea. He'll be made into a diamond soon, split among his four children around the world.

For Eva Wu, it was a slow but eventual acceptance from family, too.

WU: They thought if this is the way that can make me happy and comfortable, just go ahead.

INOCENCIO: Eva does admit a remembrance diamond may not be the way everyone may want to commemorate their loved ones, but she adds that aside from the love you hold for them, diamonds can last nearly as long.

Ramy Inocencio, CNN, Hong Kong.

(END VIDEOTAPE)

LU STOUT: A unique and touching tribute.

Now coming up next here on NEWS STREAM we'll go to the tiny principality of Monaco where a tour of one of the most famous stops for Formula 1.

(COMMERCIAL BREAK)

LU STOUT: Welcome back.

Now it is one of the most famous races in all of motorsport and definitely the most glamorous. The Monaco Grand Prix, it takes place this weekend. And the race, it goes through the tight and twisting streets of one of the world's smallest countries. Let's preview the race with a Formula 1 legend.

(BEGIN VIDEOTAPE)

JACKIE STEWART, FORMULA 1 LEGEND: Hello, I'm Jackie Stewart. Between 1965 and 1973, I won Formula 1 world championship three times. They say the Monaco Grand Prix is the most difficult race in the world and it's not. I know, because I won that one three times.

First thing you've got to think about and understand is how tight Monaco's circuit is. It demands maximum concentration of cars capable of traveling around the circuit and up the hill and through the tunnel at close to 200 miles an hour.

BERNIE ECCLESTONE, CEO FORMULA ONE MANAGEMENT: It's a street race and people are right near the action. It's happening really in front of you, so it's an indescribable (ph).

MICHAEL SCHUMACHER, FORMULA 1 DRIVER: It's crazy to go out there, because if you look at the safety aspect, you think why are we racing there? But at the same time if you go through these road guardrail tunnels it's just fascinating.

STEWART: The challenge begins at the start finishing straight. It's a sight to behold as all of the tightly packed cars on the grid hurdle towards the first corner at Saint Devote.

DAVID COULTHARD, FORMER MONACO GRAND PRIX WINNER: Going down the start finish straight is like a banana all the way down to the first corner. You know, other race tracks you can relax on the straight, you can look down into the cockpit, make adjustments, and I always used to tell the engineers when they're designing things for the driver to use I've got to be able to do it go up the hill at 170 miles an hour and instinctively know where that knob, switch, or button is. If you can't do that sitting at your desk and drawing it, don't even put it on the race car, because Monaco is just non-stop attack on the senses.

STEWART: Casino Square is a unique site in Formula 1 as is the old station hairpin as it used to be called, because that's where the railway went. But much of what makes Monaco special is the glitz and the glamor, the color and the excitement of those who come to watch.

The picturesque harbor, remarkable, and the paddock area is the place to be seen. And, by the way, the place to party.

COULTHARD: You can see the big boats arriving into the harbor, the small fishing boat getting pushed out. And the whole atmosphere builds. It's the race track that the CEOs want to be at. It's where all of the big parties are held.

STEWART: Monaco has held motor races along its streets since 1929. And this venue where the legend like Schumacher were made. Ayrton Senna holds the record of six wins here. My old friend Graham Hill secured five victories like Michael schumacher did who also set the fastest lap.

It's a test that separates the men from the boys.

RALF SCHUMACHER, FORMER F1 RACING DRVIER: It's driving through a city without getting a ticket. And I think in Monaco if you have a nice car and its drivable then even with (inaudible) the quickest then maybe on all the other circuits you can be very competitive and showed to be a good driver.

STIRLING MOSS, 3-TIME MONACO GRAND PRIX WINNER: Amongst the drivers I think (inaudible) like to say, well, (inaudible).

STEWART: And remember, if you win here, you get dinner with the serene highnesses.

PRINCE ALBERT II, MONACO: The winner comes and joins us and our guest at the table. I think it's a wonderful tradition. And it's a wonderful way to sort of keep that connection.

COULTHARD: I really, really am proud to have a picture with Prince (inaudible) when he was still alive winning that Grand Prix and then to have sat beside him knowing that he sat beside so many of the better drivers than me, but you know the greats of the sport. And that's what makes it so special.

NICO ROSBER, MERCEDES F1 TEAM: Monaco again is the history, the (inaudible), the atmosphere, it's the highlight of the F1 season.

STEWART: So that's Monaco, simply the most technical, most colorful and glamorous trophy in the world. Win it, and maybe you become a legend.

(END VIDEOTAPE)

LU STOUT: A legend with a riveting story.

And that is NEWS STREAM, but the news continues at CNN. "WORLD BUSINESS TODAY" is next.

END