The so-called "Beltway Madam" pleaded not guilty to federal racketeering and money laundering charges in federal court Friday.
Prosecutors say Deborah Jean Palfrey, 50, ran a call-girl service in the Washington, D.C. area for 13 years, taking appointments from her California home and dispatching women to luxury hotels in Washington and Baltimore. They say the service promoted prostitution.
Palfrey, who ran Pamela Martin and Associates, was released Friday on her own recognizance, but had her passport confiscated. She was officially booked, and had her picture and fingerprints taken by police.
The judge also ordered Palfrey to wear an electronic monitoring device on her ankle to track her travels between California and Washington, and anywhere in between.
In a statement to reporters after the hearing Friday, Palfry said each subcontractor hired by her signed a legally bound contract at the onset of employment that said they would not, among other things, engage in illegal behavior. Each woman was also given guidelines explaining the difference between "legal and illegal sexual content," she said.
Palfry added that no promises or claims were ever made to clients, leading him to believe one of her workers would perform "illegal acts for hire."
Men paid up to $300 for sex with college-educated women in their 20s, according to court documents. The escorts then sent half the money to Palfrey.
Her attorney, Montgomery Sibley, suggested during a press conference Friday afternoon that if any illegal sexual activity was going on between clients and Palfrey's workers, she didn't know about it.
Palfrey, who was indicted last week, is threatening to release her little black book of 10,000 clients on the Internet to pay for her defense.
She writes on her Web site that "consideration is being given to selling the entire 46 pounds of detailed and itemized phone records for the 13-year period, to raise the requisite defense funds."
Palfrey claims she needs the money after authorities raided her home last fall, seizing $1.5 million in real estate and cash and leaving her too broke to mount a good defense.
But a federal judge ruled Friday that the criminal case against Palfrey must be resolved before the civil matter of getting her assets back from the government can heard. That could take about six months.
To prevent profiteering, federal authorities filed a motion asking a judge to order Palfrey to use any documents provided solely for preparing her defense, The New York Post reported.
Sibley said it seeks only to suppress the names of the 132 escorts who worked for her — not the clients.
Sibley said the list includes some well-known politicians.
"It's a statistical certainty that there are a fair amount of high-profile people who use the service, all across the government and private sector, here in the metropolitan D.C. area," said Sibley.
Not only is Palfrey threatening to expose, embarrass and possibly subpoena clients, but she's taking a combative tone with prosecutors. On her Web site, she admits e-mailing them and promising to make the legal situation "long and unpleasant."
When asked about Palfrey's client list during a press conference Friday, Sibley would not reveal any specifics, but said, "we're talking with serious people about how they're going to help the defense in this matter."
Palfrey claims her business, which she calls an adult fantasy firm, is completely legitimate and provided services that are legal — like erotic dancing — across the spectrum of adult sexual behavior.
Palfrey's attorney said there was one woman who used to work as a cancer researcher at the National Institutes of Health who is being sued by the 'Beltway Madam' for breach of contract. The woman, who used to work for Palfry, came forward, saying she engaged in illegal activity while under contract.
FOX News' Malini Bawa and Steve Centanni contributed to this report.