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How Palin's endorsement of Trump will upend the 2016 race; Jeb Bush on offering voters a 'winning solution'

This is a rush transcript from "The Kelly File," January 19, 2016. This copy may not be in its final form and may be updated.

MEGYN KELLY, HOST, "THE KELLY FILE": Breaking tonight, a moment with the potential to change the 2016 Republican race for the White House. Or not.

Welcome to THE KELLY FILE, everyone. I'm Megyn Kelly. A short time ago, former vice presidential candidate Tea Party icon and lightning rod Sarah Palin joined Donald Trump on stage before a packed crowd in Iowa. The Buckeye State. Where Republicans cast their first votes for the eventual Republican nominee. And we're right now Donald Trump and Senator Ted Cruz are neck and neck in the polls.

Former Governor Palin endorsed Ted Cruz in his 2012 Senate contest but this time around she is backing Trump and tonight she did not hold back, blasting everyone from President Obama to the so-called Republican establishment in a 20-minute Palin monologue that included a full slate of her greatest hits. In a moment Brit Hume will be here on what this means but first, here are the highlights.  

(BEGIN VIDEO CLIP)

SARAH PALIN, R, FORMER VICE PRESIDENTIAL CANDIDATE: Mr. Trump, you're right, look back there in the press box. Heads are spinning. Media heads are spinning. This is going to be so much fun.

CROWD: Yes.

PALIN: Are you ready to make America great again?

CROWD: Yes.

PALIN: When asked why I would jump in, in to a primary, trying to stirring it up a little bit, maybe, and choose one over some friends who are running and I have endorsed a couple others in their races before they decided to run for president, I was told, you know, warned left and right you are go going to get so clobbered in the press. You are just going to get beat up and chewed up and spit out, and you know, I'm thinking and yes, just last week we are watching our sailors suffer and be humiliated on a world stage at the hands of Iranian captors in violation of international law.

Because a weak-kneed capitulator in chief has decided that America will lead from behind. And he, who would negotiate deals, the kind of like with the skills of a community organizer, maybe organizing a neighborhood tea, no more pussy footing around. Our troops deserve the best. Are you ready for a commander-in-chief?

(CHEERS AND APPLAUSE)

Are you ready for a commander-in-chief who will let our warriors do their job and go kick ISIS ass?

(CHEERS AND APPLAUSE)

What he has been able to do, which is really ticking people off, which I'm glad about, he is going rogue left and right, man. That's why he is doing so well.

(CHEERS AND APPLAUSE)

He has been able to tear the vale off this idea of the system. The way that the system really works. And please hear me on this. I want you guys to understand more and more how the system, the establishment works and has gotten us into the troubles that we are in in America. Look what's happening today. Our own GOP machine, the establishment, they, who would assemble the political landscape, they are attacking their own frontrunner.
But for the GOP establishment to be coming after Donald Trump supporters even, with accusations that are so false, they are so busted the way that this thing works. We, you, a diverse, dynamic, needed support base that they would attack. And now some of them even whispering they are ready to throw in for Hillary over Trump because they can't afford to see the status quo go. Otherwise, they won't be able to be slurping off the gravy train that's been feeding them all these years.

(CHEERS AND APPLAUSE)

They don't want that to end. Well, and then, funny, ha ha, not, funny.
But now what they're doing is wailing, well, Trump, and his trumpeters, well, they are not conservative enough to be lectured that, well, you guys are all sounding kind of angry is what we're hearing from the establishment. Doggone right we're angry, justifiably so, yes. You know these stomp on our necks and then they tell us just chill, OK, just relax.
Well, look, we are mad and we have been had. They need to get used to it.
This election is more than just your basic ABCs, anybody but Clinton. It's more than that this go around. So, we're not going to chill, in fact, it's time to drill, baby, drill down and hold these folks accountable.

DONALD TRUMP, R, PRESIDENTIAL CANDIDATE: Thank you. We're going to give them hell.

(CHEERS AND APPLAUSE)

I just want to thank Sarah and Todd. Just really amazing people. Thank you. Thank you.

(CHEERS AND APPLAUSE)

(END VIDEO CLIP)

KELLY: Well, Brit Hume is our FOX News senior political analyst. So that was fun. What were your thoughts?

BRIT HUME, FOX NEWS SENIOR POLITICAL ANALYST: Well, Megyn, I understand that endorsements are not what they once were in the days when the governor of a state who had a big political machine or a powerful senator who had an organization could swing a state in a primary or even in a general election sometimes behind a particular candidate.

KELLY: But were those endorsements rhymes? I mean, when you rhyme, it adds a special pizzazz to it.

HUME: Well, I would say this about the Palin endorsement of Donald Trump. The person that really affects more than Donald Trump it says to me is Ted Cruz.

KELLY: Right.

HUME: Because Cruz is running as the consistent conservative. And Sarah Palin has a reputation for being a true blue conservative. And so, the extent that she affects this race, the doubts that have been raised about Donald Trump have been about whether he is a conservative. And that's part of what Cruz is saying about him. And now comes Sarah Palin who I think retains the affections and loyalties of a certain number of American conservatives to vouch for him, to vouch for Trump. That hurts Cruz. It hurts Cruz particularly in Iowa. Not enormously, endorsements don't matter that much anymore. But at the margins it makes a difference.

KELLY: Uh-hm. What do you think, and of course that's why she was unleashed today because Trump has been taking a hit even now with talk radio over the weekend Levine and Limbaugh because he is going after Cruz so hard.

HUME: Right.

KELLY: And, you know, Levine was out saying, look, Cruz is a true conservative in Levine's mind. And he is finally suggesting Trump is not and telling him to back off. Here is a sampling of that.

(BEGIN VIDEO CLIP)

MARK LEVIN, RADIO TALK SHOW HOST: This is why I'm sick and tired of stupid talk. This is why I'm sick and tired of stupid issues. This birth, nonsense. Has gone on long enough for most of us. If there are websites that want to keep entertaining it, entertain it. If there are nut job lawyers or professors who want to bring the lawsuits, I beg you, bring the lawsuits. But the rest of us don't have to be dragged into stupidity.

(END VIDEO CLIP)

KELLY: He went on from there and so did Rush Limbaugh. So, he needed Palin, Trump did today.

HUME: I agree with that and Cruz was gaining on -- had gained on him in Iowa. And of course, to the point where, you know, some of the polls, at least, Cruz is ahead. I think that average has him about tied. So this is a threat to Trump, Megyn, because if he loses in Iowa, it sort of pierces this aura of invincibility that he has had about him and the idea that he is a winner and how much he is going to win and we are going to win as Americans when he is president and all the rest of it. So, there is some real threat to him here. And Cruz was mounting it and this counter acts it to some extent although in my view probably not very much.

KELLY: The other question I have for you by the way, we said Buckeye State should have said Hawkeye, forgive me. The other question I have for you is whether you think Sarah Palin yields the influence she had even back in 2012 when she endorsed Ted Cruz. I know that her endorsement really mattered in his Texas Senate run. He's acknowledge that even today. But do you think she is an influential figure now in 2016?

HUME: No, I don't. Simply because the passage of time and the fact that she did not continue to hold public office and was to some extent out of the public's view. She had -- she was on FOX News and a lot but that's faded as well. So, it doesn't matter, you know, her influence isn't as great as it once was. But it doesn't hurt. And look, what the whole effect of all of this is, is to blow up the Cruz game plan which was to slip stream in Trump's wake, suck up to him to some extent which he certainly did and hope that he could inherent Trump support. He obviously believed that Trump would fade away. And he would have -- not having criticized Trump, and he would be the one best positioned to inherit his support. Well, this whole tongue war going out between them in Iowa has ended that.

KELLY: Uh-hm.

HUME: So Cruz is, you know, Cruz is taking some real incoming recently. And I think his game plan for how to win this is wounded and, of course, if he doesn't win Iowa, he is not really not strong in New Hampshire.

KELLY: Well, unlike Trump who is way ahead of the rest of the PAC. So, Cruz --

HUME: Trump appears to be way ahead.

KELLY: Cruz has clearly taken off the gloves and so has Trump. I mean, the bromance is officially over and Cruz is going after Trump and his conservatism today. Basically laughing at Trump's claim that he has more enthusiasm than Ronald Reagan ever had. He is sort of -- he is doing it better than Reagan ever did and here was part of Cruz's response to that.

(BEGIN VIDEO CLIP)

SEN. TED CRUZ, R-TEXAS, PRESIDENTIAL CANDIDATE: Donald did an interview where he described that he thinks he is bigger than Ronald Reagan. Ronald Reagan did not spend the first 60 years of his life supporting Democratic politicians. Reagan was a voice of consistency. And I'm pretty sure that Ronald Reagan didn't write checks and support Democratic politicians like Andrew Cuomo, like Anthony Weiner, like Hillary Clinton. Mr. Trump enthusiastically supported President Obama's stimulus plan and said the only problem is it should have been bigger.

(END VIDEO CLIP)

KELLY: Going after him on stimulus, on tarp, you know, bank bailout and so on. Your thoughts?

HUME: Well, I would just say that as a lot of these establishment party leaders look at this, they are hoping against hope that what will happen is, that these two guys will beat each other up so barely that neither of them wins. Because as you know, neither of them is -- Cruz is certainly is every bit as unpopular as Trump says, and they are worried that neither of them could be elected.

KELLY: Can I just ask you quickly before I let you go, Brit. The Iowa governor came out today and said, don't vote for Cruz, whatever you do. Scale on one to 10, how important is that?

HUME: Well, it's important to the people in Iowa who care about that ethanol subsidy, and Cruz, to his great credit, in my opinion, has resisted that and wants to phase it out. And that's what Terry Branstad, the governor -- the Republican governor of Iowa was complaining about. I think that Cruz is probably taking whatever hit he is going to take on that and this probably won't make that much difference.

KELLY: Brit, it's always great to see you.

HUME: Thanks, Megyn.

KELLY: Pastel Brit is with us in the winter months, we miss him when the spring comes. Put the suit back on.

In moments, Governor Jeb Bush will be here to speak about Trump, Palin, Iowa and the next debate which is a week from Thursday.

Plus, double trouble for Hillary Clinton with the stunning new poll in the Democratic race and a big news breaking in her email scandal. A real problem for her. And then, growing outrage over reports the Pentagon may demote General David Petraeus. You know, the man who led our successful surge in Iraq. It's only on THE KELLY FILE when we come back.

(BEGIN VIDEO CLIP)

DAVID PETRAEUS: I regret and apologize for the circumstances that led to my resignation from the CIA and caused such pain for my family, friends, and supporters.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

PALIN: Now what they're doing is wailing, well, Trump, and his trumpeters, well, they are not conservative enough. Oh my goodness, gracious, what the heck do the establishment know about conservatism? He-- being the only one who's been willing. He's got the guts to wear the issues that needs to be spoken about and debated on his sleeve where the rest of some of these establishment candidates, they just wanted to duck and hide, they didn't want to talk about these issues to he brought him up. In fact, they've been wearing a political correctness, kind of like a suicide vest. And, enough is enough.

(END VIDEO CLIP)

KELLY: Sarah Palin going for the two birds approach in Iowa just a short time ago, endorsing the Donald and taking swipes at both the GOP at large and likely a few candidates in particular all in the same breath.

Joining me now, former Florida Governor Jeb Bush, a Republican candidate for president. Governor, great to see you. So, your reaction to not winning the Sarah Palin endorsement.

JEB BUSH, R, PRESIDENTIAL CANDIDATE: Well, I respect her. We share common belief in the sanctity of life and the rights of the disabled we worked together on those issues. And I respect her for that. But I think the voters in Iowa and New Hampshire and primary voters in general are going to want to know who can beat Hillary Clinton. And I have a proven record and detailed plans, conservative plans to be able to lay out an agenda that could transform our country, Washington, D.C. And transform our country in terms of high economic growth and keeping us safe.

KELLY: She is in a different wing of the party and she is over in sort of that more Tea Party wing.

BUSH: I have 11 Medal of Honor recipients supporting me. Thirty admirals and generals, they're not supporting me because I'm establishment or Tea Party. They don't view it that way. They view me as a solid person that could be a commander-in-chief and have the back of the Armed Forces. We are gutting the military, we don't have a strategy to deal with ISIS. I've laid out that plan to do it and that's why they are supporting me. And while I respect Sarah Palin, I don't think Donald Trump has the judgment or the ideas to keep us safe. He has been all over the map.

KELLY: Now, are you surprised she went for Trump given, you say that you worked on disabilities together. She has a son, of course, who has Down syndrome. You just released an ad last week for hitting Trump for what appeared to be his mocking of a "New York Times" reporter who has a birth defect calling him a jerk, he's calling Trump and found some Iowans and feel the same because they have children with disabilities. Are you surprised to see the endorsement in light of that? By the way, Trump denies he was doing it--

BUSH: Yes. I don't -- I don't think -- he is on video doing it, it's not a question that he didn't do it. The simple fact is, you can't disparage your way, insult your way to the presidency. He is not going to beat Hillary Clinton. And, what we need to do is have a candidate that actually has a proven record. And my record is the most conservative record on the stage in terms of a proven record. Not just talking about it but actually doing it and that's the message that I take to voters in Iowa and New Hampshire tonight. I'm finishing up some campaigning and I will be here for four days and it's resonating. And you can see it as slowly but surely the polls are moving in my favor.

KELLY: Let's talk about that because, you know, just a quick scan of the latest show shows that you are in sixth -- sixth in the Real Clear Politics average. Sixth in the Des Moines Register latest poll out of Iowa and sixth from the latest poll out of New Hampshire, too.

BUSH: No, that's not true. We're --

KELLY: All right. So, what are you seeing?

BUSH: Well, the last poll I saw second place. Basically it's a jump ball for a second place, four or five candidates --

KELLY: In New Hampshire?

BUSH: -- In South Carolina -- yes, yes. Exactly. Megyn, I don't know where you are getting these polls but the simple fact is, we have the best ground game here on connecting with voters and we're making -- we're making really good progress because I have a proven record and I have detailed plans and I can show it.  

KELLY: Here it is. American Research Group and you are six.

BUSH: I only look at the polls that show me doing well. That's my strategy.

KELLY: Stay positive. That's the power of positive thinking. I believe in that, too. What about that, Governor?

BUSH: You have got to believe in that.

KELLY: So, do you -- next week.

BUSH: You have got to believe in this.

KELLY: A week from this Thursday, you and I will meet again. We will meet in Iowa for the very last debate before the Iowa caucuses.

BUSH: Yes, I'm looking forward to it.

KELLY: Before the Iowa caucuses. And, you know, there is so much pressure on you guys on these debates. Do you have a different strategy? Do you need to do something different before those caucuses? What's the goal?

BUSH: The goal for me is just to share my ideas about what we can do to lift my country up. I mean, 63 percent of Americans couldn't pay for a car repair of $500 right now. They are living paycheck to paycheck. I get why people are angry. Washington is not working. But we need solutions rather than just saying how bad things are. And the front running candidate for president in our party doesn't have solutions and Hillary Clinton doesn't either. She would double down on the economic policies of Barack Obama.
We need to dramatically change course by reforming our taxes and our regulations and I have laid out these detailed plans yesterday of a plan to eliminate the student loan program and move to a system that wouldn't be so burdensome for students.

Not free community college or free education but allow people to have a line of credit if you will and be able to pay it back based on the income they earn going forward over the next 25 years. Those are the kind of solutions that people want to hear. When I do my town hall meetings, people don't ask me about who is winning and who is losing. They want to know how they can win. And that's what I offer them is a winning solution.

KELLY: Governor, looking forward to seeing you next week. Thank you, sir.

BUSH: See you next week.

KELLY: All the best.

BUSH: Thank you.

KELLY: Well, there's also big news tonight for Hillary Clinton. First in a stunning new poll and second in a FOX News exclusive on her email scandal and that news is not good.

Plus, a big employer is taking fire after saying no more special prayer breaks for Muslim employees. Marther is on the case tonight.

(COMMERCIAL BREAK)

KELLY: Breaking tonight. Double trouble for Hillary Clinton's campaign for the White House. Nationally her lead over Bernie Sanders is shrinking.
And then there's a stunning new poll out of the early voting state of New Hampshire. Look at this. Bernie Sanders now has 60 percent of the vote there. That's almost double Hillary Clinton's number at 33. Look at that.
It comes as FOX News learns that Mrs. Clinton's private emails from her days as Secretary of State contained even more highly classified intelligence than previously thought. They are not private emails. They are our emails but she kept them on her private server. We are talking now about the kind of intelligence that less than a dozen people in the government have access to and information that is kept so secret because it could potentially endanger lives and destroy our ability to collect intelligence forever.

(BEGIN VIDEO CLIP)

CHARLES FADDIS, FORMER CIA OPERATIONS OFFICER: Yes, this information is compromised. We're going to suffer very serious national security damage.
People are going to die, quite frankly.

(END VIDEO CLIP)

KELLY: Wow. Shannen Coffin is a former deputy assistant attorney general in the Justice Department's Civil Division and former council to Vice President Dick Cheney.

Shannen, good to see you. So, apparently unbeknownst to many people there is a level of top secret that is even above top secret and she had that stuff on her private server and now Catherine Herridge was reporting tonight this could be a game changer in this entire email situation for her. Explain it.

SHANNEN COFFIN, FORMER DEPUTY ASSISTANT, ATTORNEY GENERAL IN DOJ'S CIVIL
DIVISION: This is what we call code word information. It's information that is compartmentalized so that even if you have a top secret clearance, that doesn't mean you necessarily have access to this information. These are programs that protect -- that are classified at this high level to protect sources and methods of intelligence. And the disclosure of this information could be extraordinarily harmful to the United States security interests.

KELLY: This is the stuff -- the kind of stuff that General David Petraeus got in trouble for and wound up getting charged with a felony for but pleaded down to it a misdemeanor, right?

COFFIN: Well, that's right.

KELLY: Or could have faced felony charges.

COFFIN: That's right. But remember here this is pervasive. I mean, we are talking about dozens of emails that the inspector general, the intelligence community has told Congress that he has viewed and that information is so secure that he had to get special permission for his staff to be able to review information about those emails. And all of this is on her private server. We're talking about it at this point, we know of over 1,300 emails that are classified at some level.

KELLY: --contrast that information which we are now hearing from actual government sources who are investigating this.

COFFIN: Right.

KELLY: Contrast that information with what she has said, here is one sampling but she said it over and over on other dates. Watch.

(BEGIN VIDEO CLIP)

HILLARY CLINTON, D,, PRESIDENTIAL CANDIDATE: Well, first, let me say that I am confident that I never sent nor received any information that was classified at the time it was sent and received. I did not send nor receive anything that was classified at the time.

I did not receive nor sent anything that was classified.

(END VIDEO CLIP)

KELLY: What is she trying to say? I mean, is there any out clause for her? Because what we're hearing now is, oh, yes, you did.

COFFIN: And that story has changed. It went from there was nothing classified to hey, there was nothing marked classified and really Megyn, that's not a defense, it's an admission of guilt. This is information that had to be taken off of a classified server or a classified document and put, knowingly by someone, into unclassified email.

KELLY: So, what she is really saying there is, the document wasn't marked classified. But that's not what determines whether a document is classified or not.

COFFIN: No. And that's right. And remember, we go back to the statutes that define criminality here. Those don't even mention classification. The statute that is at issue here makes it a crime to under terms of gross negligence, not even knowledge, but grossly negligently removing national defense information from a secure location and putting it in an unsecure location.

KELLY: Uh-hm.

COFFIN: That doesn't even talk about classification. Classification is just confirmation that there's a problem.

KELLY: This is getting tougher and tougher for her and looking uglier and uglier. Quickly go ahead.

COFFIN: To quote, you know, the well-known security expert, Astro Jetson Ratrow George (ph).

(LAUGHTER)

KELLY: You sure you work for Cheney?

(LAUGHTER)

Great to see you, Shannen.

COFFIN: Yes.

KELLY: A growing outrage tonight over reports the Pentagon may now demote the general whose name you just heard. David Petraeus. The man who led the successful surge in Iraq. They may demote him now.

Marc Thiessen and Mark Hannah are here next on whether the general should lose his stars and some of his retirement pay among other things.

And growing calls now to boycott the Oscars for a lack of diversity after director Spike Lee and actress Jada Pinkett Smith announced they're going to do just that. We'll debate their claims and look at how some other celebs are responding to the message coming up.

(BEGIN VIDEO CLIP)

JANET HUBERT: People are dying, our boys are being shot left and right. People are hungry, people are starving, people are trying to pay bills and you talk about some (bleep) actors and Oscars, and it just ain't that deep.  

(END VIDEO CLIP)

(COMMERCIAL BREAK)

ANNOUNCER: From the world headquarters of Fox News, it's The Kelly File with Megyn Kelly.

MEGYN KELLY, THE KELLY FILE SHOW HOST: Developing tonight, the Pentagon confirming reports now that the defense secretary may demote one of the most respected generals in modern American history. Four-star general David Petraeus retired from the U.S. Army in 2011. Among his many accomplishments, he commanded U.S. ground forces in Iraq, beating back a growing insurgency in 2007. He took over a troubled war in Afghanistan in a critical time. He eventually rose to the head of CENTCOM, overseeing the Middle East, North Africa and Central Asia.

Then in 2012, while serving as director of the CIA, General Petraeus was forces to step down. It was revealed that he had an affair -- he was married, and had disclosed classic -- classified information to his mistress who was writing his biography. The general pleaded guilty to a misdemeanor, he paid a fine and he was sentence to probation, but he did not lose his rank.

Now tonight, the Pentagon says Defense Secretary Ash Carter is considering demoting him. Marc Thiessen is Fox News contributor and former chief speechwriter to President George W. Bush. Mark Hannah is a partner of the Truman National Security Project and adjunct professor of media studies at the New School. I mean, to say that General Petraeus led the successful surge in Iraq would be an understatement, it would -- it as his, and they call it the Petraeus surge, and saved a lot of lives. And he had an affair, and he did something wrong, and he copped to it. And now they want to demote him after the -- four years later, Mark Thiessen, they want to demote him too, why?

MARK THIESSEN, FORMER CHIEF SPEECHWRITER TO PRESIDENT GEORGE W. BUSH: It's absolutely outrageous. I mean, look. General Petraeus is an American hero.
He is quite literally the most consequential general in American -- American military general since World War II. This is a man who took a war that we were losing. We were facing a Vietnam-like defeat in Iraq, turned it around and turned it not only desert, not only turn around, turned it into a military victory. He did something wrong. He admitted what he did wrong. He mishandled classified information. Pled guilty, paid a fine -- was sentenced. And he paid his -- debt to society. His reputation is in tatters. His future in public life is gone. He has paid a huge price. Why would the Obama administration want to humiliate this man? With all the things that are happening in the world that Ash Carter has to worry about.
Syria is falling apart. Iraq is falling apart. Afghanistan is falling apart. Yemen is falling apart. Libya is falling apart. Why is he wasting one second on whether he should demote General Petraeus? It's not right.

KELLY: What about it Mark Hannah? Haven't they gotten their pound of flesh? He copped to it, the Army -- has recommended that he not be demoted.

MARK HANNAH, TRUMAN NATIONAL SECURITY PROJECT: Right, right.

KELLY: They said leave him alone, all right? And now the defense secretary has to step in and take another look at it?

HANNAH: He's taking a look at the evidence. There is no question that General Petraeus is one of the smartest military minds and bravest military men that we have seen in this generation. But Mark Thiessen is saying quite a different tune than he's saying on the American Enterprise Institute blog, when he criticized, somewhat pointedly General Petraeus for different policies in the past. This is about, and let's talks about what this is about. The Daily Beast article that citing an unnamed source within the Pentagon is saying that this is about being fair to other people, other generals, senior officers that might leak or have leaked. There's -- you can say what you want about the Obama administration, but it has been terrifically consistent when it comes to prosecuting national security leakers, it is something that --

KELLY: And they're kicking out really qualified generals.

HANNAH: Well, it infuriates --

(LAUGHTER)

HANNAH: It infuriates. They are not kicking anybody out. He resigned after
--

KELLY: Well --

HANNAH: Scandal. We can't put him there.

KELLY: Understood.

THIESSEN: Who's --

KELLY: McChrystal got kicked out.

HANNAH: He admitted fault and --

KELLY: But I understand that. But the thing is here, Mark, that -- and I get that the report is, they want to be consistent and they've done this to other generals. They've demoted other generals from their four-star status, I understand. But --

HANNAH: Right.

KELLY: I think it's reasonable to say that General Petraeus, who's holds a special spot in the hearts and minds of many Americans and many soldiers.

HANNAH: Tell that to --

THIESSEN: Oh, absolutely.

HANNAH: Tell that to anybody --

KELLY: That's for Thiessen.

HANNAH: OK.

THIESSEN: OK. Absolutely, you know he goes the special heart -- and listen, this is a man who literally save the war, turned a war around. So I think that counts for something. And by the way, you know, you just had a segment on Hillary Clinton, Megyn. You know, this is -- what General Petraeus did doesn't even compare to what Hillary Clinton did. General Petraeus had -- shared paper documents with some classified information with one person that was never any national security information compromised. Hillary Clinton put thousands of classified e-mails, top secret, as secured compartment information.

KELLY: Well, Hillary, as people say the difference is she -- if she did it, she did it unknowingly and he did it knowingly. Go ahead Hannah.

THIESSEN: He, he --

HANNAH: Yeah. He had eight notebooks that he handed over to his biographer who happened to be his mistress, full with state secrets -- sensitive, classified military intelligence full of covert agents and their names.

KELLY: This is bad.

HANNAH: It was bad stuff.

KELLY: No question, it's bad. It's bad.

THIESSEN: It's serious.

HANNAH: It was bad stuff.

THIESSEN: I'm not saying it's not serious.

KELLY: But hasn't he paid price already, Mark Hannah?

HANNAH: Look, anybody who puts on the uniform knows that people, when you're -- when you are putting on the uniform, you've got to be treated the same whether you are four-star general or you're just an enlisted man. If you break the law, if you disobey an order, you're gonna be held to account. I think General Petraeus had been --

KELLY: Whatever happened to prosecuting --

HANNAH: The reason he hadn't comment on this --

KELLY: The progressives like you are always coming on the show and talking about prosecutorial discretion, prosecutorial discretion.

HANNAH: Sure.

KELLY: Why doesn't that apply with General Petraeus?

HANNAH: It does. It does.

KELLY: When they say you know what?

HANNAH: And Ash Carter.

KELLY: The recommendation to Ash Carter was.

HANNAH: Right.

KELLY: Leave him alone.

HANNAH: And Ash Carter --

KELLY: And now he is coming in and the discretion only gets executed in the harshest way possible when you are talking about a storied U.S. general.

HANNAH: Megyn, my money is on the fact that Ash Carter probably won't demote General Petraeus. But look, the -- he has got to look at the information. He has done this with other generals.

KELLY: He's doing that. He will lose part of his pension, a difference in pension payments. He may have to pay it back, other benefits that he received, and it could be quite costly for him -- guys, thanks for being here.

HANNAH: Thanks, Megyn.

THIESSEN: Thanks, Megyn.

KELLY: Up next, a big company is now taking fire after saying no more special prayer breaks for Muslim employees. That's like just ahead when Marthur joins us. But right after this break, it started with a call to boycott Oscars, it did not end there; Hollywood and race, next.

(COMMERCIAL BREAK)

KELLY: Calls for a boycott of the Oscars are growing tonight. After Director Spike Lee and Actress Jada Pinkett Smith took the opportunity on Martin Luther King Day, to suggest that's exactly what they will be doing at the Oscars this year -- boycotting. The stars and many others are upset over the lack of any African-American nominees. The situation in the academy has found itself in before, but not everyone seems to agree on how to respond. Trace Gallagher live in our West Coast newsroom. Trace?

TRACE GALLAGHER, TV NEWS ANCHOR: Megyn, not only are the acting nominees all white, the only minority nominated in any major category is the Hispanic director of The Revenant, Alejandro Gonzalez Inarritu aside from Spike Lee and Jada Pinkett Smith. Academy is growing pressure for this year's host Chris Rock to bow out. Rock has made fun of the all-white selections but he's given no indication he will quit. Al Sharpton believes the best way to protest is to tune out. Listen.

(BEGIN VIDEO CLIP)

REVEREND AL SHARPTON, CIVIL RIGHTS ACTIVIST: Sometimes when people's profit is touched, it leads to them, turning around and changing their minds about institutional neglect and institutional exclusion.

(END VIDEO CLIP)

GALLAGHER: Academy president Cheryl Boone Isaacs blames her own members saying quote, "We have implemented changes to diversify our membership in the last four years, but the change is not coming as fast as we would like." Actor George Clooney thinks the problem starts way before the Oscar ballot box saying, quote, "I don't think it's a problem of who you're picking as much as it is, how many options are available to minorities in film, particularly in quality films?" Boyz n the Hood director John Singleton, the first black director ever nominated says he doesn't have a problem with the nominations lacking diversity, quoting again, "There's only so many slots. There are a couple of movies that may have warranted attention, but it's all subjective." Though, Singleton does thinks Straight Out of Compton, should have been nominated. And Will Smith's former, Fresh Prince of Bel-Air co-star Janet Hubert, took us swipe at Jada Pinkett Smith, saying quote, "Our boys are being shot left and right. People are hungry, people are starving, and you're talking about some blanking actors and Oscars -- Megyn.

KELLY: Trace, thank you. Joining me now is political commentator Lisa Durden, and Fox News contributor and executive director of theblacksphere.net, Kevin Jackson, good to see you both. So --

LISA DURDEN, POLITICAL COMMENTATOR: Thank you, Megyn.

KEVIN JACKSON, EXECUTIVE DIRECTOR OF THEBLACKSPHERE.COM: Good to see you.

KELLY: Lisa, let me start with you on this. Your take on whether Spike and Jada have it right.

DURDEN: Hashtag #OscarSoWhite is right. I am very thrilled that Jada Pinkett Smith and director Spike Lee called for the boycott of the 2016 Oscars. Not only is it very apropos, but it's a great first start. However, I also agree that this is not enough. Whoopi Goldberg said today that we need to stop having this big brouhaha every year around, Oscar time, and I agree with her. We should do this all year around. My suggestion is we keep our $10 in our pocket and away from the box office. We need to hit Hollywood where it hurts. Keeping butts out of seats. That's the power. That's when holiday will wake the hell up.

KELLY: But what do you make it, Kevin?

JACKSON: Too bad Hollywood doesn't have a metaphorical bus that Rose Parks, that can get on right now. I got to tell you, this is so funny to me. Jada Pinkett is mad because her husband didn't get an Oscar for a movie about guys that run at each other, 25 miles an hour, getting concussions.
Spike Lee did Chi-Raq and he is upset because he wants to bring attention to a real problem in Chicago. But it's, you know, I didn't see the film but, you know, it probably was more of a biopic more than anything. And what was funny, the guy who wanted an Oscar for Selma happens to be a Brit who stole the job from a black man here in the United States, and he is mad that people don't want to give homage to a film another -- yet another film about Martin Luther King and how bad it is for black people in America.
Look, they've got to make better films than what they are making. Snoop Dogg chimed in on it. What? Does he want an Oscar for the movie Soul Plane? Hollywood has been doing this for decades.

KELLY: That's a good one.

JACKSON: For decades.

(LAUGHTER)

JACKSON: Hollywood -- Hollywood has been doing this for decades. And what's interesting, Lisa and Megyn, the people who are accepting money for this, to sell out blacks haven't said a word. They wait until Oscar time to say hey, listen guys, let me put you on the spot when you accept your Oscar for doing great work because we didn't see enough people of color.

(CROSSTALK)

JACKSON: It's ridiculous.

KELLY: OK. So, if there is not enough, there aren't enough roles for African-Americans in Hollywood, and that's sort of built into the system, then, who you because -- and now we come to Oscar time. Is that -- should that just be a fair competition, fair and square? Should race enter into it?

DURDEN: Megyn, there are -- Kevin named some films that weren't so good. There are a bunch of piss poor white actresses.

KELLY: Oh.

DURDEN: Piss for white directors.

KELLY: Who?

DURDEN: Piss for white producers for a century, almost a hundred years who been being nominating and winning.

KELLY: Name it.

DURDEN: For bad performances.

KELLY: Could you be more specific?

DURDEN: We can't go there, but we can go there Kevin, stop playing that game.

KELLY: But why are people --

JACKSON: And you know, Lisa, Lisa.

KELLY: You know, Kevin, of course, Chris Rock -- he is black. And he is hosting the Oscars. And so --

DURDEN: And he is going to kill by the way. He's going to rip them.

JACKSON: And let me, let me show.

KELLY: A lot of people say he should, go ahead.

JACKSON: Let me tell you what.

DURDEN: He should go hard.

JACKSON: Let me tell you what.

DURDEN: Or go home.

JACKSON: Let me tell you what, Chris Rock is gonna host the Oscars, knowing what he knows, he is going to take that check. And here's the other thing Lisa, that you probably haven't --

DURDEN: Absolutely.

JACKSON: That you probably haven't thought about. Why don't black people go start their own Hollywood? The Indians have Bollywood. Go start Blallywood.

KELLY: Are you serious Kevin?

JACKSON: If you want to be something in you --

KELLY: Are you serious?

JACKSON: Yes, I'm serious. Yes, I'm serious.

(CROSSTALK)

KELLY: We'll have to leave it at Blalywood.

JACKSON: What about Tyler Perry? What about Tyler Perry who makes his own films.

(CROSSTALK)

KELLY: I got to go.

JACKSON: Spike Lee --

KELLY: I got to go.

JACKSON: Yes.

KELLY: But you left us with a lot to think about. It's great to see you both.

DURDEN: We need a town hall meeting, Kelly -- Megyn.

(CROSSTALK)

KELLY: Good to see you both.

DURDEN: We need a town hall meeting.

KELLY: Kelly is fine. All right, see you soon.

Up next, big employer just changed the rules for its Muslim employees when it comes to where they pray -- Marthur on the case.

(COMMERCIAL BREAK)

KELLY: Developing tonight, a Wisconsin company is being accused of potential discrimination after deciding to enforce its long standing break policy. The problem started last week, when the Ariens Company informed its Muslim employees that they need to stop. They need to pray during only the normally scheduled break times, instead of stopping their work and interrupting company work flow, to pray. Now, CAIR, the Council on American Islamic Relations is involved, and making clear to the company, you better accommodate these workers. Arthur Aidala is the Fox News legal analyst and trial -- New York trial attorney. Mark Eiglarsh is a criminal defense attorney, great to see you both. So, basically there are 53 Muslim employees and they are not happy that they couldn't pray exactly when they wanted to. Arthur?

ARTHUR AIDALA, FOX NEWS LEGAL ANALYST: Well, it's not like they are not happy. They don't really have a choice. In their religion they're supposed to pray five times a day, sunrise then at noon. And that's the really the big one here, then towards the end of the day, meaning towards the end of the work day, then at sunset, and then before they go to sleep. So the noon and the sunset one -- I'm sorry, towards the end of the work day, those are the ones they had issue. So if their lunch break is at 11:30 or 12:15, they are supposed to be on their knees at noon.

KELLY: So --

AIDALA: They did it fine for a while. Excuse me, a had a little --

KELLY: So your logics are your -- the tickle in your throat is costing your air time.

AIDALA: OK --

KELLY: Mark, let me ask you. So the employer is under an obligation to offer a reasonable accommodation. It's up to the employer to decide.

MARK EIGLARSH, CRIMINAL DEFENSE ATTORNEY: That's right.

KELLY: Is it reasonable for me to stop the work flow at the company, involving these 53 Muslim employees, so that they can pray twice a day?

EIGLARSH: Right. I think Arthur is tickle, was him avoiding established law, January of 2015.

KELLY: Who hasn't used that in court?

(LAUGHTER)

EIGLARSH: Well, in 2015, a federal court ruled against Somali Muslims who sued a meat packing plant in Nebraska, and found that it was an undue hardship to take these unscheduled prayer breaks, it affects productivity.

AIDALA: First of all, the court never said unscheduled prayer breaks. There's a schedule that comes out.

EIGLARSH: That's what it says, Arthur.

AIDALA: Megyn, a schedule comes out. I believe in the first of every month that tells the Muslim faith when exactly to pray, so they know. And the thing that doesn't ring through here is this company ran efficiently with these 53 Muslim employees doing this for quite some time and now all of a sudden.

EIGLARSH: Wait a second.

AIDALA: This --

EIGLARSH: Arthur.

AIDALA: Now that this -- a politically, a hot potato, the whole Muslim issue. Now they --

EIGLARSH: You were in the assembly line?

KELLY: Go ahead, Mark.

EIGLARSH: Hold on, what happens is, hey Lou, hey, Bob. I'm going to take another prayer break.

AIDALA: Five minutes.

EIGLARSH: I'm sure you won't mind picking up my slack -- yeah, you --but again, several times a day for no extra pay. You don't think that that might create some issues in this (inaudible)?

AIDALA: Really?

KELLY: They are irritated. Their boss -- they're irritated, Arthur.

(CROSSTALK)

KELLY: And what the company owner -- you read the name of the company, it sounds like Ariens.

AIDALA: Yes --

(CROSSTALK)

KELLY: They do want to make clear, it's Ariens.

(CROSSTALK)

KELLY: The owner of Ariens, whatever, is saying that the other employees were complaining, Arthur, that they were saying, you know, there's 10 of us on assembly line, you need 10, two keep wanting to leave, the other eight have to stand there for 20 minutes.

AIDALA: If you told me it was even 10 minutes, Megyn, I'd look it up. Do you know how long the average time is to smoke a cigarette? Six minutes. So it's one minute more than the prayer. The average --

EIGLARSH: The person on break.

AIDALA: The person who goes to the men's room, who has got a weak bladder, I'm sure that's very close to five minutes.

KELLY: Really?

AIDALA: And they know the time of the day -- sure by the time you leave you walk over there, you go in --

(CROSSTALK)

KELLY: But let me ask you this, Mark.

EIGLARSH: Yeah.

KELLY: Because the reasonable accommodation -- think back to Kim Davis.

EIGLARSH: That's it.

KELLY: She didn't want to issue licenses and it was -- give her a reasonable accommodation. Why can't they just sort of work the breaks in a way that benefits all these employees? Why can't they just move it back a little or move it forward a little?

EIGLARSH: That is ideal. And if they are good workers, you don't want to lose them. Apparently, it's not working. They've given them a designated prayer room, and additionally they say -- there is another thing you can't pray. Pray on your scheduled break.

AIDALA: But Mark --

EIGLARSH: If that doesn't work for you, Arthur. If that doesn't -- that is reasonable.

AIDALA: Mark, it doesn't work for the whole religion.

EIGLARSH: Is it --

AIDALA: It's the whole religion that doesn't work for.

(CROSSTALK)

KELLY: But you know how it goes. Then the next thing you know you're gonna have like Catholics coming out and saying, I don't know, like I need time off to meditate on --

AIDALA: But we do. We got what this called Good Friday. It's called Easter.

EIGLARSH: Oh, Arthur.

AIDALA: It's called Christmas.

KELLY: You don't have to do it certain times of the day, though.

EIGLARSH: Come on.

KELLY: I mean it was all day.

AIDALA: No, we get the whole day off.

KELLY: OK. I got --

AIDALA: We got all those days.

KELLY: We have to go, but I do have a very special surprise involving Arthur, right after this break.

AIDALA: Oh, thank you.

EIGLARSH: Oh my.

(COMMERCIAL BREAK)

KELLY: All right, so Arthur has got an update to this photo -- go.

AIDALA: So since you put that photo on my birthday, December 1st, through Facebook, I found my dancing teacher, Ms. Mary Lou, and we hung out yesterday, and she looks so much better than I do. So thank you Facebook and thank you.

KELLY: Thanks, Mary Lou.

AIDALA: The Kelly File for making me --

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