Witnesses said Obama was delivering remarks at the private fundraiser Tuesday when lesbian activist Ellen Sturtz, 56, interrupted to demand President Obama sign an anti-discrimination executive order, The Washington Post reported.
The first lady paused and confronted Sturtz, witnesses said.
"One of the things that I don't do well is this," she said. "Do you understand?"
A pool report indicated Obama approached the protester and said, "Listen to me or you can take the mic, but I'm leaving. You all decide. You have one choice."
The pool report indicated a woman near Sturtz told the activist, "You need to go" and Sturtz was led from the room.
She told the Post she was floored by Obama's response.
"She came right down in my face," Sturtz said. "I was taken aback."
"I said I want your husband to sign the executive order. Her husband could sign this order tonight and protect 22 percent of the work force in this country."
The proposed executive order would bar federal contractors from discrimination based sexual orientation or gender identity, the Post said.
Sturtz said she paid $500 to attend the fundraiser as part of a protest orchestrated by GetEqual, which heckled the president during speeches in his first term, demanding more action on lesbian, gay, bisexual and transgender issues.
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