The Late Show host revealed to his studio audience during the live taping of Thursday's show that he had been targeted by an unknown individual who had details of intimate relations he had had with female employees. (Scroll down for video clip.)
The blackmailer demanded $2 million to keep the information out of the public domain.
Letterman claims he handed over the plot to the Special Prosecution Bureau of the Manhattan District Attorney's office, who went as far as to issue a fake check to the person.
Letterman was then asked to provide a testimony for the city's grand jury, in which he confirmed he had sexual encounters with members of his team.
He told the audience, "This morning, I did something I've never done in my life: I had to go downtown and testify before a grand jury.
"Yes, I have (had sex with employees). Would it be embarrassing if it were made public? Perhaps it would. I feel like I need to protect these people -- I need to certainly protect my family."
Letterman married longtime girlfriend Regina Lasko in March. It is not known when the flings occurred.
A person was arrested on Thursday in connection to the extortion plot.
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