Elmo puppeteer accused of underage relationship

NEW YORK (AP) — The puppeteer who performs as Elmo on "Sesame Street" is taking a leave of absence from the popular kids' show following allegations that he had a relationship with a 16-year-old boy.

Sesame Workshop says puppeteer Kevin Clash denies the charges, which were first made in June by the alleged partner, who by then was 23.

In a statement issued Monday, Sesame Workshop said its investigation found the allegation of underage conduct to be unsubstantiated. But it said Clash exercised "poor judgment" and was disciplined for violating company policy regarding Internet usage. It offered no details.

At his request, Clash has been granted a leave of absence in order to "protect his reputation," Sesame Workshop says. No duration for the leave was specified. Clash has voiced and animated Elmo since the 1980s.

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United returning $5.6M in tax incentives









United Continental Holdings, parent of United Airlines, is giving back $5.6 million in City of Chicago tax incentives.

The incentive money is tied to United's 2007 move to its corporate headquarters at 77 W. Wacker Drive, along the Chicago River.

Because of United's recent plans to move out of that building and consolidate its headquarters into Willis Tower where it has other operations, the airline said it was "appropriate" to return the money. However, it wasn't necessary.

City officials said United had so far fulfilled its obligations for receiving the money, such as maintaining a minimum employment level in the 77 W. Wacker Drive building, and that the incentives would have traveled with the company as it moved several blocks down Wacker Drive to Willis Tower.

"I commend United Airlines on an incredible act of corporate citizenship that speaks to the unique role Chicago's business community plays in the future of the city," Mayor Rahm Emanuel said in a statement.

United said it will give back $5.6 million it already received in Tax Increment Financing, or TIF, a funding tool used by Chicago to promote investment in the city.

United will also forgo up to $9.7 million more in TIF money that the city would have paid the airline, for a total of $15.3 million. However, United probably wouldn't have received the remaining $9.7 million because the money was tied to its fuel consumption at O'Hare International Airport.

"We were unlikely to ever realize the incremental $9.7 million anyway because of our improving fuel efficiency and reduced capacity," United spokeswoman Christen David said, referring to the airline's business strategy of reducing its overall flying by operating fuller planes.

The giveback does not include $35.9 million in TIF money tied to a separate 2009 incentive agreement that involved moving 2,500 workers from Elk Grove Village to Willis Tower.

"Since we are vacating 77 W. Wacker, which we redeveloped with the help of city economic incentives, we feel it is appropriate to return the funds we used for that redevelopment," David said.

The airline decided it should not combine the incentive agreements for the two locations. "This decision does not have any impact on the agreement for Willis Tower," she said.

The move to return money might seem surprising, coming from a company with thin profit margins in an industry that has struggled. Flight cancellations during superstorm Sandy caused a financial setback of $90 million in revenue and $35 million in profit for the month of October, United said last week.

"I do think this is rare," Joe Schwieterman, a professor in the school of public service at DePaul University, said of giving back incentive money. But in general, companies like to maintain their flexibility and can be hamstrung by a requirement for a minimum employment level at a certain location, he said. United's TIF agreement called for a minimum employment of 315 over 10 years, starting in 2007 at 77 W. Wacker. A 10-year commitment "is an eternity in the topsy-turvy world" of business, he said. "And employment guarantees can be an albatross around senior management's neck."

When United finishes the move, it will have more than 4,000 employees in Willis Tower, far more than the approximately 2,800 they were required to have for both TIF agreements.

United CEO Jeff Smisek said in a letter to Emanuel last week that the airline will consolidate into Willis because it "will be a critical factor in building a common company culture and greater operational efficiency, which we view as keys to our success."

He said United has met the commitments in its incentive agreements on the headquarters building. "However, now that we are relocating co-workers to Willis Tower, we believe it is appropriate to terminate those agreements and repay the city funds we have received," Smisek said in the letter.

United currently leases about 625,000 square feet in Willis. The airline secured another 205,000 square feet in the building and extended the term of its lease through 2028, according to Smisek. The airline expects to finish building out the additional space by the second quarter of next year, according to Smisek's letter.

The mayor's office called United's Willis expansion "one of the largest office space commitments in Chicago's history."

United is the fourth company to return TIF funds recently, according to the mayor's office. The others are CME Group, CNA Group and Bank of America, which together returned some $34 million in TIF money last year. CNA and Bank of America fell short of the 2,700 or so jobs each was required to keep in exchange for the tax breaks, which helped them update buildings. However, they returned the money earlier than they had to, a city spokesman said.

The returned money goes back into the TIF program and will be used for other projects.

gkarp@tribune.com



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'No cause has been ruled out' after deadly Indianapolis blast

At least two people are dead after a late-night explosion in an Indianapolis neighborhood.









The cause of an explosion and fire that killed two people Saturday night when it tore through a residential area of Indianapolis is under investigation, authorities said Sunday.

"There's a significant number of homes that have sustained damage, including two that have been completely destroyed. No cause has been ruled out," said Marc Lotter, a spokesman for Indianapolis Mayor Greg Ballard.

"The investigation is ongoing," he said. He added that seven people had been injured in the explosion, which left a large debris field and damaged at least 18 houses in addition to the two that were destroyed.








"It looks like a war zone here right now," Hensley said.

Fire officials confirmed two fatalities early Sunday morning, Hensley said.

More than 100 firefighters responded to the two-alarm fire, according to a fire department statement.

Officials evacuated about 200 people to a nearby elementary school, where the Red Cross was sheltering about 20 of them for the night. Others spent the night in the homes of friends or family, and officials planned to take the remainder to the Southport Presbyterian Church.

As of late Sunday afternoon, approximately 60 cases of water and Gatorade are outside the school and a police spokesman said donations are pouring in, including toiletries, doughnuts and pizza.

Firefighters had brought the fire under control by 12:30 a.m. Sunday but were still putting out hotspots afterward, Hensley said.

The blast originated near 8415 Fieldfare Way, according to the fire department release.

From his bedroom a block away, 47-year-old software engineer Chris Patterson felt the walls of his home shake. The force of the explosion shattered a glass sliding door in his home, he said.

"It felt like something had hit our house,” Patterson said.

Patterson and his wife stepped outside, where they found other neighbors in the street and an orange glow in the distance.

Another neighbor who lives in the newer subdivision where blast happened said his windows were blown out.

The subdivision where the blast occurred was built in 2001, said resident Steve Belt. Belt said he was in bed with his wife when the exposion nearly knocked them out of bed, he said. 

Belt was later escorted by police back inside their home for medication his wife needs because of a recent surgery.

As fire officials shut off gas to the neighborhood, police came by soon after to evacuate residents to the elementary school staging area, where first responders had established a triage area. There, after checking in with authorities, stunned neighbors sat on bleachers and waited for more information.

"You had a bunch of sleepy kids and nervous-looking parents," Patterson said.

Patterson and his wife ultimately spent the night at his mother's home.

As search and investigation efforts continue today, the Department of Code Enforcement of Indianapolis will be assessing the safety of homes affected by the explosion.

asege@tribune.com

Twitter: @AdamSege

mmanchir@tribune.com

Reuters contributed to this report.





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Apple and HTC settle global patent battle

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Oregon is No. 1 in AP Top 25; K-St 2, Notre Dame 3

NEW YORK (AP) — Oregon is No. 1 in The Associated Press college football poll after Alabama gave up the top spot following a loss to Texas A&M.

The Ducks have 45 of 60 first-place votes. Kansas State is No. 2 with 14 first-place votes. Notre Dame is third and received one first-place vote.

The Crimson Tide, which had been No. 1 for 10 straight weeks, dropped to fourth after a 29-24 loss to the Aggies in Tuscaloosa, Ala., on Saturday.

Texas A&M moved up six spots to No. 9.

The Ducks were last No. 1 in 2010. That was the first season in the history of the program that Oregon reached No. 1, and the Ducks spent seven weeks there and reached the BCS championship game, which they lost to Auburn.

No. 25 Kent State is ranked for first time since Nov. 5, 1973.

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Food labels multiply, some confuse consumers

FRESNO, Calif. (AP) — Want to avoid pesticides and antibiotics in your produce, meat, and dairy foods? Prefer to pay more to make sure farm animals were treated humanely, farmworkers got their lunch breaks, bees or birds were protected by the farmer and that ranchers didn't kill predators?

Food labels claim to certify a wide array of sustainable practices. Hundreds of so-called eco-labels have cropped up in recent years, with more introduced every month — and consumers are willing to pay extra for products that feature them.

While eco-labels can play a vital role, experts say their rapid proliferation and lack of oversight or clear standards have confused both consumers and producers.

"Hundreds of eco labels exist on all kinds of products, and there is the potential for companies and producers to make false claims," said Shana Starobin, a food label expert at Duke University's Nicholas School of the Environment.

Eco-labels have multiplied in recent years in response to rising consumer demand for more information about products and increased attention to animal and farmworker welfare, personal health, and the effects of conventional farming on the environment.

"Credible labels can be very helpful in helping people get to what they want to get to and pay more for something they really care about," said Urvashi Rangan, director of consumer safety at Consumer Reports. "The labels are a way to bring the bottom up and force whole industries to improve their practices."

The problem, Rangan and other said, is that few standards, little oversight and a lot of misinformation exist for the growing array of labels.

Some labels, such as the USDA organic certification, have standards set by the federal government to which third party certifiers must adhere. Some involve non-government standards and third-party certification, and may include site visits from independent auditors who evaluate whether a given farm or company has earned the label.

But other labels have little or no standards, or are certified by unknown organizations or by self-interested industry groups. Many labels lack any oversight.

And the problem is global, because California's products get sold overseas and fruits and vegetables from Europe or Mexico with their own eco-labels make it onto U.S. plates.

The sheer number of labels and the lack of oversight create a credibility problem and risk rendering all labels meaningless and diluting demand for sustainably produced goods, Rangan said.

Daniel Mourad of Fresno, a young professional who likes to cook and often shops for groceries at Whole Foods, said he tends to be wary of judging products just by the labels — though sustainable practices are important to him.

"Labels have really confused the public. Some have good intentions, but I don't know if they're really helpful," Mourad said. "Organic may come from Chile, but what does it mean if it's coming from 6,000 miles away? Some local farmers may not be able to afford a label."

In California, voters this week rejected a ballot measure that would have required labels on foods containing genetically modified ingredients.

Farmers like Gena Nonini in Fresno County say labels distinguish them from the competition. Nonini's 100-acre Marian Farms, which grows grapes, almonds, citrus and vegetables, is certified biodynamic and organic, and her raisins are certified kosher.

"For me, the certification is one way of educating people," Nonini said. "It opens a venue to tell a story and to set yourself apart from other farmers out there."

But other farmers say they are reluctant to spend money on yet another certification process or to clutter their product with too much packaging and information.

"I think if we keep adding all these new labels, it tends to be a pile of confusion," said Tom Willey of TD Willey Farms in Madera, Calif. His 75-acre farm, which grows more than 40 different vegetable crops, carries USDA organic certification, but no other labels.

The proliferation of labels, Willey said, is a poor substitute for "people being intimate with the farmers who grow their food." Instead of seeking out more labels, he said, consumers should visit a farmers' market or a farm, and talk directly to the grower.

Since that's still impossible for many urbanites, Consumer Reports has developed a rating system, a database and a web site for evaluating environmental and food labels — one of several such guides that have popped up recently to help consumers.

The guides show that labels such as "natural" and "free range" carry little meaning, because they lack clear standards or a verification system.

Despite this, consumers are willing to pay more for "free range" eggs and poultry, and studies show they value "natural" over "organic," which is governed by lengthy federal regulations.

But some consumers and watchdog groups are becoming more vigilant.

In October, the Animal Legal Defense Fund filed a lawsuit against Petaluma, Calif., organic egg producer of Judy's Eggs over "free range" claims. The company's packaging depicts a hen ranging on green grass, and the inside reads "these hens are raised in wide open spaces in Sonoma Valley..."

Aerial photos of the farm suggest the chickens actually live in factory-style sheds, according to the lawsuit. Judy and Steve Mahrt, owners of Petaluma Farms, said in a statement that the suit is "frivolous, unfair and untrue," but they did not comment on the specific allegations.

Meanwhile, new labels are popping up rapidly. The Food Justice label, certified via third party audits, guarantees a farm's commitment to fair living wages and adequate living and working conditions for farmworkers. And Wildlife Friendly, another third-party audited program, certifies farmers and ranchers who peacefully co-exist with wolves, coyotes, foxes and other predators.

___

Follow Gosia Wozniacka at http://twitter.com/GosiaWozniacka

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Bond soars with record $87.8M 'Skyfall' debut

LOS ANGELES (AP) — James Bond's "Skyfall" has extended its worldwide box-office rule to North America, hauling in a franchise-record $87.8 million in its first weekend at U.S. theaters.

Adding in $2.2 million from Thursday night previews at IMAX and other large-format theaters, "Skyfall" has taken in $90 million domestically, according to studio estimates Sunday.

That lifts the worldwide total for "Skyfall" to $518.6 million since it began rolling out overseas in late October. Internationally, the 23rd Bond flick added $89 million this weekend to raise its overseas revenue to $428.6 million.

The third installment starring Daniel Craig as British super-spy Bond, "Skyfall" outdid the $67.5 million U.S. debut of 2008's "Quantum of Solace," the franchise's previous best opening. "Skyfall" more than doubled the $40.8 million debut of Craig's first Bond film, 2006's "Casino Royale."

"Skyfall" already has passed the $407.7 million overseas total for "Quantum of Solace" and by Monday, it will top the $432.2 million international haul for "Casino Royale."

The Craig era has reinvigorated one of Hollywood's most-enduring franchises, whose first big-screen Bond adventure, "Dr. No," debuted 50 years ago.

"It's quite a testament to Bond, considering it's the 50th anniversary. What a great anniversary present," said Rory Bruer, head of distribution at Sony, which produces the Bond films along with MGM.

"Skyfall" was the weekend's only new wide release, but Steven Spielberg's "Lincoln" had a huge start in a handful of theaters. Starring Daniel Day-Lewis as the 16th president, "Lincoln" took in $900,000 in 11 theaters for a whopping average of $81,818 a cinema. By comparison, "Skyfall" averaged $25,050 in 3,505 theaters.

"Lincoln" centers on the months leading up to the president's assassination in April 1865, as he maneuvers to pass the 13th amendment abolishing slavery and end the Civil War. Distributor Disney will expand "Lincoln" into nationwide release of about 1,600 theaters Friday and may widen the film further over Thanksgiving week.

The film has strong Academy Awards prospects for two-time directing winner Spielberg, two-time acting recipient Day-Lewis and the rest of the cast, which includes Oscar winners Sally Field and Tommy Lee Jones.

"The performances are some of the greatest of recent time," said Dave Hollis, head of distribution for Disney. "I don't know if you're ever going to think about it again without seeing our actor as Lincoln. Daniel is extraordinary in the role."

"Skyfall" took over the top spot at the weekend box office from Disney's animated comedy "Wreck-It Ralph," which fell to No. 2 with $33.1 million, raising its domestic total to $93.7 million.

While "Skyfall" marked a new high for Bond's opening-weekend revenue, the film has a long way to go to match the biggest audiences 007 has ever drawn. Adjusted for inflation, Sean Connery's 1965 Bond adventure "Thunderball" would have taken in an estimated $508 million domestically in today's dollars, with its 1964 predecessor "Goldfinger" not far behind at $444 million, according to box-office tracker Hollywood.com.

The Bond films over the last two decades have come in around the $200 million range domestically in inflation-adjusted dollars.

Still, Craig's Bond is setting a new critical standard for the franchise. While "Quantum of Solace" had a so-so critical reception, "Skyfall" and "Casino Royale" are among the best-reviewed Bond films, with critics and fans enjoying the darker edge Craig has imprinted on 007.

"'Skyfall' is to the Bond franchise what 'The Dark Knight' was to the Batman franchise," said Hollywood.com analyst Paul Dergarabedian. "By taking it to a whole other level, this is a different kind of Bond that can be taken really seriously."

Directed by Sam Mendes, the Academy Award-winning filmmaker behind "American Beauty" and Craig's director on "Road to Perdition," ''Skyfall" continues the current franchise's exploration into the emotional traumas that have shaped Bond's cool, aloof manner.

The film reveals secrets out of the past of Bond's boss, British spymaster M (Judi Dench), and pits 007 against a brilliant but unstable former agent (Javier Bardem) who's out for revenge.

Hollywood remains on a brisk pace this fall as the busy holiday season approaches. Overall domestic revenues totaled $172 million, up 26 percent from the same weekend last year, when "Immortals" led with $32.2 million.

For the year, domestic revenues are at $9.1 billion, up 4.3 percent from 2011's, according to Hollywood.com.

Estimated ticket sales for Friday through Sunday at U.S. and Canadian theaters, according to Hollywood.com. Where available, latest international numbers are also included. Final domestic figures will be released Monday.

1. "Skyfall," $87.8 million.

2. "Wreck-It Ralph," $33.1 million.

3. "Flight," $15.1 million.

4. "Argo," $6.7 million.

5. "Taken 2," $4 million.

6. "Here Comes the Boom," $2.6 million

7. "Cloud Atlas," $2.53 million.

8. "Pitch Perfect," $2.5 million.

9. "The Man with the Iron Fists," $2.49 million.

10. "Hotel Transylvania," $2.4 million.

___

Online:

http://www.hollywood.com

http://www.rentrak.com

___

Universal and Focus are owned by NBC Universal, a unit of Comcast Corp.; Sony, Columbia, Sony Screen Gems and Sony Pictures Classics are units of Sony Corp.; Paramount is owned by Viacom Inc.; Disney, Pixar and Marvel are owned by The Walt Disney Co.; Miramax is owned by Filmyard Holdings LLC; 20th Century Fox and Fox Searchlight are owned by News Corp.; Warner Bros. and New Line are units of Time Warner Inc.; MGM is owned by a group of former creditors including Highland Capital, Anchorage Advisors and Carl Icahn; Lionsgate is owned by Lions Gate Entertainment Corp.; IFC is owned by AMC Networks Inc.; Rogue is owned by Relativity Media LLC.

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Phil Rosenthal: Forming a Bond with brands








On the big screen, a hero's mettle is established by showing how much punishment the star can withstand and how daunting the obstacles are while ultimately getting the job done.

Early in the latest James Bond movie, "Skyfall," an assassin seeks to escape on a train speeding through the Turkish countryside. His tireless pursuer is pelted with bullets, swats away bugs and, when the bad guy disconnects the trailing car, extends an arm to literally hold on to the rest of the train so the chase can continue.

And the pursuer is, in fact, tireless because it is a modified Caterpillar 320D L excavator that Daniel Craig's Bond has commandeered. The bullets are bullets, but the bugs are Volkswagen Beetles, some swept off the train, others crushed. The logo-covered excavator's arm not only holds onto the rest of the train but provides Bond a perch from which to leap into the carriage, fixing the cuffs in his Tom Ford suit as he goes after the villain.






"For (the filmmakers), it wasn't an excavator, it wasn't what they would in the U.K. call a digger — it was for them a 'hero machine' because it was something that actually saves Bond," said Robert Woodley, the marketing executive for Peoria-based Caterpillar Inc., from his office in Geneva.

Woodley arranged and oversaw Cat's "Skyfall" star turn. "It's not just having the brand out there. It's seeing what light it's going to be viewed in."

"Skyfall" is practically "Skymall," what with all the brands and products mentioned and showcased.

The practice is neither new nor isolated. Yet even by the license-to-shill standards of increasingly commercialized James Bond movies, this one has an awful lot of brand exposure. All that's missing are the NASCAR-style logo patches for Bond, no slouch behind the wheel.

Especially now that the fictional covert operator is the focal point of an extremely overt ad campaign for beer, albeit Heineken.

Never mind the other products basking in the superspy's aura, such as Sony mobile phones and Vaio laptop computers, Macallan single-malt Scotch, Honda cycles, Bollinger Champagne, Globe-Trotter suitcases, Crockett & Jones footwear, Walther guns, Aston Martin cars, Swarovski jewelry, Omega watches, OPI nail polish, Land Rovers and Range Rovers and all the rest.

Some pay for the privilege, some make other arrangements. Some, like the new James Bond fragrance hawked by Procter & Gamble, aren't in the film. But all told, sponsorship and other ancillary deals for "Skyfall" are said to have brought in $45 million, about a third of what it cost to produce the film, one of the best in the Bond series.

"We have relationships with a number of companies so that we can make this movie," Craig told Moviefone on the "Skyfall" set this spring. "The simple fact is that, without them, we couldn't do it. It's unfortunate, but that's how it is."

The 007 tradition of brand integration, brand cameos, product placement or whatever you want to call it dates back to the original Ian Fleming stories. Some would say it's in the name of verisimilitude. But it's said Bond, originally a reader exclusively of The Times of London, also began reading the rival Daily Express when that paper began serializing Fleming's work.

Through a half-century of 007 films, the practice has grown as producers realized the potential economic windfall and marketers recognized the unique opportunity of association with the 007 franchise — as well as other entertainment.

"The challenge with product placement is it has to fit," said Timothy Calkins, a marketing professor at Northwestern University's Kellogg School of Management. "When it works, there's a natural connection between the brand and the story and when it doesn't work, there's an inconsistency, and both parties are worse for the deal."

Today's sophisticated media consumer expects to see brands in TV shows, movies and even video games, according to Tom Weeks, senior vice president at LiquidThread (formerly known as Starcom Entertainment), the branded entertainment and content development operation within Chicago's Starcom MediaVest Group. But proper context — proper casting — is a must.

"Brands are stars, too," Weeks said. "They've got their own Twitter accounts. They've got their own Facebook pages. And they're invited into content as part of the experience. But it has to be done right, in a way that's not obtrusive and doesn't interrupt the digestion of that content."

Some Bond aficionados scoff at the Heineken tie-in, preferring to think of their man as a martini and Dom Perignon man. But there was Red Stripe beer in 1962's "Dr. No." And besides the familiar green-bottled Heineken (whose logo also is emblazoned on an unlikely wooden crate toppled in an early chase scene) and a lightly sipped martini, there is a memorable scene built around 50-year-aged Macallan.

"When I was at Kraft, there were times when a film would come out and our brands would be in the film and we'd be delighted … or not," he said. "I never saw a time when one of our brands was used in a way that made us cringe, but it could happen."

Case in point: the VW Beetles, out-of-stock models, crushed in "Skyfall." "While we always look for opportunities for exposure in the form of product placement, we were not involved with this placement," Corey Proffitt, who handles product communications for Volkswagen of America, told the Tribune by email.

Caterpillar, which first tied up with 007 in 1999's "The World is Not Enough," hopes the "Skyfall" connection boosts brand awareness, particularly in emerging markets like China, which seems a manageable goal.

A theme of "Skyfall" is that today's world is changing faster than ever, which is as true of advertising as it is of espionage. That's why you're only going to see more brand cameos, a la the Bond films.

"The traditional tools of advertising are fading and marketers are looking for new things to do," Calkins said. "Product placement becomes one of those things that can engage people where other methods have no effect."

Talk about daunting obstacles to overcome while ultimately getting the job done.

philrosenthal@tribune.com

Twitter @phil_rosenthal






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Petraeus resignation as CIA chief brings sudden halt to career

General David Petraeus is stepping down as CIA Director, citing an extra-marital affair.CNN reports the FBI had a tip that he was involved with his biographer Paula Broadwell and investigated to determine whether it posed a security risk.









CIA Director David Petraeus resigned as head of the leading U.S. spy agency on Friday, saying he had engaged in an extramarital affair and acknowledging he "showed extremely poor judgment."

In a letter to the CIA workforce, Petraeus, 60, said he met with President Barack Obama at the White House on Thursday and asked "to be allowed, for personal reasons, to resign from my position."






"After being married for 37 years, I showed extremely poor judgment by engaging in an extramarital affair," he wrote. "Such behavior is unacceptable, both as a husband and as the leader of an organization such as ours."

Obama, who was re-elected to a second term on Tuesday, said in a statement he had accepted Petraeus' resignation, praising him for his work at the Central Intelligence Agency and for leading U.S. troops in Iraq and Afghanistan.

The woman with whom the former CIA director had the affair is Paula Broadwell, according to a person familiar with the matter. She is an author who wrote a biography of Petraeus titled "All In."

Attempts to reach Broadwell were unsuccessful. There was no answer at the door of her house in the affluent Charlotte, North Carolina, neighborhood of Dilworth.

Much about the sudden and dramatic turn of events remained unknown Friday evening, including how long the affair had gone on and what prompted Petraeus to resign now, just days after the 2012 presidential election.

There were indications, however, that the affair was first uncovered a few months ago during an investigation by the FBI. A U.S. national security source said the FBI had stumbled across evidence of Petraeus' affair during an apparently unrelated investigation of news leaks.

Petraeus' revelation of the affair appeared to end the public career of a widely admired warrior-scholar who played a key role in the Iraq war, led the U.S. Central Command and commanded U.S. and NATO troops in Afghanistan.

Petraeus' name had circulated speculatively as a possible Republican presidential nominee before Obama tapped him as CIA chief. Before taking the CIA post, he retired as an Army general after nearly four decades of military service.

Petraeus led the CIA for only 14 months. His sudden departure threatened to usher in a period of instability at the spy agency, which is grappling with a leveling off in its budget after a decade of steady increases.

The agency is also fending off questions about its performance before and after the attack that led to the death of U.S. Ambassador Chris Stevens in Benghazi, Libya.

U.S. officials insisted the CIA's handling of the Benghazi incident had nothing to do with Petraeus' decision to resign.

TESTIFY ON CAPITOL HILL

Petraeus recently traveled to Libya and the Middle East, and had been scheduled to testify about the Benghazi events next week behind closed doors to the House and Senate intelligence committees. Now, he will not give that testimony.

There is no indication Petraeus broke any agency rule in connection with his admitted affair, sources familiar with the matter said. The CIA has no broad rule banning officials from engaging in extramarital affairs though, if discovered, liaisons by CIA personnel with suspected foreign agents would pose security problems for a U.S. agent.

In his statement, Obama said "I am completely confident that the CIA will continue to thrive and carry out its essential mission."

Obama, who accepted Petraeus' resignation in a phone call with him on Friday afternoon, said Michael Morell, the agency's long-time deputy director, would serve as acting CIA chief.

Morell is a leading candidate to be Petraeus' permanent successor, sources said. He earned Obama's trust when he frequently briefed the president during planning for the operation to take down Osama bin Laden, a senior administration official said.

"He's respected, a straight shooter, and has great relationships with the White House and Capitol Hill. Not to mention over 30 years of agency experience," said a former CIA official, who called Morell "the odds-on favorite."

Other possible candidates being discussed on Capitol Hill include John Brennan, Obama's chief counter-terrorism adviser; Obama's national security adviser Thomas Donilon; and former congresswoman Jane Harman, who chaired the House intelligence committee.

Petraeus' resignation also adds a new vacancy on Obama's national security team. Secretary of State Hillary Clinton has said she will leave after Obama's first term, and Defense Secretary Leon Panetta is widely expected to leave as well.

Petraeus' wife, Holly, has been an advocate for U.S. veterans and head of the Office of Servicemember Affairs at the U.S. Consumer Financial Protection Bureau.

Last month, Petraeus and his wife appeared together at a reception at the Canadian Embassy in Washington to celebrate the premiere of the Ben Affleck film "Argo," which chronicles a successful operation in which the CIA and Canadian diplomats smuggled a group of U.S. officials out of Tehran during the 1979-81 U.S. Embassy hostage crisis.

At the Pentagon, people who worked closely with Petraeus expressed shock at the revelations and at his resignation.

Sen. Dianne Feinstein, chair of the Senate Intelligence Committee, said in a statement: "I wish President Obama had not accepted this resignation, but I understand and respect the decision."

(Additional reporting by Matt Spetalnick and Phil Stewart in Washington and Rick Rothhacker in Charlotte; Writing by Warren Strobel; Editing by Jackie Frank, Jim Loney and Todd Eastham)



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China derides U.S. "Cold War mentality" towards telecoms firm Huawei

BEIJING (Reuters) - The United States is exhibiting a "Cold War mentality" with its fears that Chinese telecommunications equipment manufacturer Huawei poses a security risk because of its ties to the Communist Party, China's commerce minister said on Saturday.


The U.S. House of Representatives' Intelligence Committee warned last month that Beijing could use equipment made by Huawei, the world's second-largest maker of routers and other telecom gear, as well as rival Chinese manufacturer ZTE, the fifth largest, for spying.


The report cited the presence of a Communist Party cell in the companies' management structure as part of the reason for concern.


The state role in business prompted a U.S. congressional advisory panel to complain this week that Chinese investment in the United States had created a "potential Trojan horse".


"Can you imagine if China started asking U.S. companies coming to China what their relationship was with the Democratic or Republican parties? It would be a mess," Commerce Minister Chen Deming, himself a Communist Party member, told reporters on the sidelines of the 18th Party Congress, which will usher in a new generation of leaders.


"If you see me as a Trojan horse, how should I view you? By this logic, if the Americans turned it around, they would see that it's not in their interest to think this way."


All Chinese state-owned enterprises and a growing number of private Chinese firms have a Communist Party secretary at the top of their management structure. In most cases, the top management are themselves party members.


Neither Huawei nor ZTE is state-owned. Huawei is owned by its employees and ZTE by different institutions.


Suspicions of Huawei are partly tied to its founder, Ren Zhengfei, a former People's Liberation Army officer. Huawei denies any links with the Chinese military and says it is a purely commercial enterprise.


The Commerce Ministry China last month dismissed the U.S. suspicions as groundless.


"This report by the relevant committee of the U.S. Congress, based on subjective suspicions, no solid foundation and on the grounds of national security, has made groundless accusations against China," spokesman Shen Danyang said.


(Reporting by Lucy Hornby; Editing by Nick Macfie)


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