Brian Ross Reports on the D.C. Madam: Read the Complete Transcript

Jeane Palfrey: We're not talking about selling their bodies. We're talking about selling services. You've got to get your hair cut -- you get a service. This is a service. You're not selling your soul, for God's sakes.

Brian Ross: You certainly are taking the romance out of it.

Jeane Palfrey: There is no romance in it. It's a service. I don't think there's any romance in any of this.

But if she thought her carefully worked out legal strategy would protect her profitable business and comfortable lifestyle in California, she was wrong.

Seven weeks ago, as part of a Bush administration crackdown on prostitution, a federal grand jury indicted Palfrey, accusing her of running a large-scale prostitution ring that brought in more than $2 million.

But instead of accepting a deal from prosecutors to spend a few months in prison, Palfrey showed up in court to plead not guilty and tell prosecutors she would call all of her prominent customers as witnesses.

Jeane Palfrey: I told them to go to hell. Absolutely, they could go to hell with their deal.

In the 1990s, Palfrey served 18 months in prison in San Diego on charges of attempted felony pimping and says she is not going back.

Jeane Palfrey: I sure as heck am not going to be going to federal prison for one day, let alone, you know, four to eight years here, because I'm shy about bringing in the deputy secretary of whatever. Not for a second. I'll bring every last one of them in if necessary.

To prove just how prominent her customers were, Palfrey and her lawyer, Blair Sibley, turned over four years worth of long-distance phone records to "20/20."

We did not pay for them nor did we promise to share the results of our research.

Palfrey says federal agents had no interest in the records and studiously avoided learning about her male customers, as usually happens in such cases, according to a leading academic expert on the subject Melissa Farley.

Melissa Farley: The women are arrested; the women are incarcerated; the women are taken out in handcuffs, and the men who buy and use women in prostitution slowly and quietly slink off, and they're pretty much socially and legally invisible.

But not in the case of the D.C. Madam. Most prominent of her customers was Deputy Secretary of State Randall Tobias, who was in charge of the Bush administration's efforts to crack down on prostitution worldwide.

This was Tobias at an AIDS conference in 2004.

Randall Tobias: Abstinence works. Be faithful works. Condoms work.

Tobias resigned 24 hours after confirming to "20/20" that he had been a customer, saying, "He had some gals over to the condo for massages."

Tobias said it was no different than ordering a pizza and denied there was any sex.

Melissa Farley: I don't see the Johns as a victim; I don't see their privacy rights being victimized so much as I see them as predators.

The phone records trace back to thousands of men, including a career Justice Department prosecutor.

There are NASA officials; at least five military officers, including the commander of an Air Force intelligence squadron.

Also named by Palfrey is Harlan Ullman, a leading military analyst who wrote the book "Shock and Awe," a concept cited by the Pentagon in planning the war in Iraq.

Palfrey says she remembers Ullman as "Mr. U," -- remembers him well.

Jeane Palfrey: I think he was a disagreeable character. And there were some complaints about him, yes.

Brian Ross: From your women.

Jeane Palfrey: Yes.

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