This is a rush transcript from "On the Record," August 28, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: This story is shocking the nation tonight. Little Jaycee Dugard was kidnapped in 1991, allegedly by Nancy and Philip Garrido. The couple allegedly kept this girl prisoner for the past 18 years. And it does get worse. Philip Garrido allegedly fathered two children with Jaycee. Garrido says he's innocent. In an interview, Garrido says, in part, "In the end, this is going to be a powerful, heart- warming story. You are going to be really impressed." Jaycee Dugard, now 29, is free.

Joining us live is Jon Cassidy, reporter for The Orange County Register. Jon, it's hard to believe that we're going to be impressed, it's going to be a heart-warming story, but whatever. But take me back to 1991. What happened at the time this child was kidnapped?

JON CASSIDY, ORANGE COUNTY REGISTER: Well, Jaycee was on her way to catch a bus. She was walking up the hill in front of their house. Her stepfather, Carl, was out front and saw a car kind of pull down the street, swing around in the cul-de-sac and then head back up the hill. The car cut off Jaycee. A woman reached out and grabbed her. They sped off. Carl took off on his bike to try to catch them, but there was no way he could pedal uphill fast enough. So he came back down and had the neighbor call 911. And she's never been seen since.

VAN SUSTEREN: Was anybody under suspicion -- I mean, almost fault -- obviously, falsely, a suspect at the time?

CASSIDY: Well, Carl at times was thought to be a suspect. I don't know how seriously the police took him as a suspect, but there were members of his own family that thought he had some involvement because he was the last one to see her. Some of them even chipped I think up to $6,000 to a private investigator who was investigating him. It led to the break-up of his marriage. Well, they're still married but separated now. And it's just been -- you know, the whole kidnapping has ruined their lives since then.

VAN SUSTEREN: All right, so fast-forward to now. How far away was the child -- was the child, now a woman, living from where she was kidnapped? And where -- where are the Garridos tonight? In jail, right?

CASSIDY: The Garridos are in jail there. Their house is in Antioch, which is about 140 miles from Lake Tahoe, where Jaycee was kidnapped. And this all started I think on Tuesday. He went to UC Berkeley to try to share some of his beliefs about how he can speak in the tongue of angels, how he can control voices with his mind. And that raised the suspicion of the UC Berkeley campus police, not his strange beliefs -- they're used to that sort of thing there -- but the fact that he had these two little girls with him, dressed like they were from "Little House on the Prairie," but behaving like robots.

So there was a campus police officer there who noticed their odd behavior and called -- did a background check on him real fast, noticed that he was on parole, called the parole officer. And the parole officer said, He doesn't have kids. And that's when, you know, the suspicions really took off, and that's when this whole latest story really swung into motion.

VAN SUSTEREN: All right, now, the things that's really -- I mean -- I mean, every -- every single fact about this story that we're hearing is horrible, but it is -- at least, it's being reported that two of the children -- that this man had two children with Jaycee, the kidnap victim. Has that actually been verified by the police, or is that just what people are saying?

CASSIDY: No, that is what -- what both Jaycee and Phillip Garrido are saying. There's no one questioning that. She was kidnapped when she was 11, and authorities are saying that when she was 14, she gave birth to their first daughter, and four years later gave birth to a second. So she was still a child when she had her first child.

VAN SUSTEREN: Were they living in the back yard of this couple's house?

CASSIDY: They were living within a back yard within a back yard. It was a really crazy set-up. There was sort of a false -- false back to the back yard, a fence with a lot of junk and trees up against it, and then a tarp covering a little hole. And if you crawled through that tarp, there was a second back yard with soundproofed outbuildings that only open from the outside, where, you know, one could presume they were kept so they wouldn't disturb the neighbors, or tents, an outhouse, a shower. And they lived their entire lives there.

Authorities say that the kids were born there. They never went to a hospital. They had never seen a doctor. They've never been to school. And they've hardly been outside of that compound except for a few field trips.

VAN SUSTEREN: Jon, thank you.

CASSIDY: Oh, thank you.

VAN SUSTEREN: Joining us live is Deepal Karunaratne. He spent time with Jaycee inside the house and did business with her accused kidnapper. Deepal, when was the last time you were inside the house?

DEEPAL KARUNARATNE, CUSTOMER OF SUSPECT: You know, Greta, I haven't been inside the house more than twice. That was, like, long time ago. But I always deal with her. When I call her and come over here, I waited by the gate. She comes out and she talk to me, and so we do our business and -- matter of -- in a matter of 5 or 10 minutes, it's done, so I go away. I believe the last time I met her, about a month-and-a-half ago.

VAN SUSTEREN: All right, let me back up. You -- they -- the guy who's in custody is in some sort of printing business, and you would go as a customer to the house, is that right?

KARUNARATNE: Yes. Yes. That's right.

VAN SUSTEREN: And at the house, I presume you saw his wife, but then you would also talk to Jaycee. She's the one who would come out to the fence to you.

KARUNARATNE: Greta, because she was in charge of doing all my work, and she was doing all the graphic designing and sending me proofs and stuff like that. And she was the person behind the scenes running the printing press.

VAN SUSTEREN: Did anything seemed weird to you?

KARUNARATNE: Not really at the time, Greta, because she was introduced to me as his daughter, and he said, you know, he's running a family business, a home-based basically. So I didn't see anything wrong with that. And his wife was there, Nancy, and of course, the two younger girls, both introduced to me as his two younger daughters.

I did not see anything weird, other than -- other than he does not entertain any friends or anybody inside his house or doesn't encourage anyone to come in the back yard. He was a kind of a religious fanatic, so I thought some of the religious people, when they go to extremes, they don't like to associate with other people and they think they are better than everybody. So I thought -- Phillip appeared to me -- appeared to be like that. So I thought, you know, there was nothing wrong with that. So I did not see anything weird or strange in that.

VAN SUSTEREN: What was his -- what is his business he had? I mean, how -- how big was it?

KARUNARATNE: I have no idea, Greta, but as far as I'm concerned, whatever work I gave to them, they handled it very nicely and very professionally and very neatly and with unbeatable rates. So I -- over the years, I have referred him some of my associates, some of the people in the business area. I have told them, you know, this is the guy. You should go and get a good job done and pay a reasonable amount.

VAN SUSTEREN: Deepal, thank you very much.

KARUNARATNE: Thank you.


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