by Guy Lawson
“We have an emergency,” Packouz said.
“Dude, I’m sleeping,” Diveroli replied.
“Our plane got seized in Kyrgyzstan,” Packouz said.
“Our plane was seized?” Diveroli said. “What the fuck you talking about?”
“The Hungarian ammo. Kyrgyz intelligence is saying we don’t have the right paperwork to transit through their country. They say we’ll be fined three hundred grand for every day we’re stuck there.”
Diveroli was now fully awake.
“Three hundred thousand dollars a day?” Diveroli asked, shouting into the phone. “That’s insane. What the fuck is going on? Tell them this is a vital mission in the war on terror. Tell them that if they fuck with us they’re fucking with the United States of America.”
“Yeah, yeah, I said that. I’m going to call the American embassy when it’s morning there.”
“You got to fix this. We can’t afford this kind of shit. This is unfuckingacceptable. Call the State Department, call the Pentagon—call anyone you can think of. Go over to Kyrgyzstan and give those mobsters a fucking blow job if you have to. Do whatever it takes to get this resolved—and I mean whatever it takes.”
“I’m on it,” Packouz said.
“You know I can’t help from here—I got enough troubles dealing with the fucking Albanian mafia.”
“I’ll get to the Kyrgyz.”
“Now if you’ll excuse me, I’m going to get back to fucking this hooker,” Diveroli concluded.
/ / / / /
To observe that these kids from Miami Beach—still in their early twenties—were in over their heads would be an understatement.
Despite their youth, all three of the dudes were highly capable, in their different ways. Efraim Diveroli was little short of a genius when it came to bidding on federal contracts and mastering the intricacies of dealing with the Pentagon’s bureaucracy. David Packouz was inventive and steady under stress. Alex Podrizki, the only one with a college degree and a modicum of military experience, was taciturn, cautious, determined to ensure that none of the ammo they shipped to Afghanistan was substandard.
But they had no real experience, training, or preparation to fulfill a contract as complex and vital as the $300 million Afghanistan deal. Giant international conglomerates had entire departments staffed by military veterans designed to fulfill contracts like the one the dudes were working on. The Pentagon had established the Defense Acquisition University in the 1990s and trained thousands of specialists in the arcane world of military procurements, an industry rife with the perils of fraud and political intrigue. Scores of small companies were also competing for the Army’s contracts in Afghanistan and Iraq, almost all run by men in their forties and fifties with arms-dealing experience and connections inside the military. To their rivals, the kids had been a joke at first, but then they’d become a major threat because of their uncanny ability to win contracts by underbidding the competition.
The story of how the three dudes exploded onto the international arms-dealing scene began three years earlier, in the summer of 2004. At the tender age of eighteen, Efraim Diveroli had resolved improbably—but with true fervor—to turn himself into a gunrunner. Diveroli and his pals David Packouz and Alex Podrizki had met as teenagers at a yeshiva in Miami Beach, where they routinely skipped prayers to smoke dope in a nearby abandoned house. They belonged to a posse of Orthodox Jewish kids who styled themselves as grunge punks. Chasing around the Art Deco hotels of Miami, their gang rejected the strictures of religious life for the pleasures and distractions of modern American youth. Until the youngest of their gang, Efraim Diveroli, stumbled onto the idea of making money from America’s wars in Iraq and Afghanistan—and drew his friends into the nascent arms business he was going to construct.
“When I started working with Efraim, I knew nothing about war,” David Packouz recalled. “I knew about the so-called global war on terror. But I’m talking about the business of war—because that’s what it was, a business. It turned out that I had a great teacher in Efraim. He was only a kid, but arms dealing came naturally to him. He had an uncle who dealt arms, so the business was kind of in his family, but nothing like the level he took it to. Efraim was born to be a gunrunner.”
At the time, the eighteen-year-old Diveroli was living near the beach in a back-room studio apartment he rented from a Hispanic family. Wake and bake was his daily ritual. The buzz from a couple of hits on the bong he kept on the kitchen table helped him focus as he spent the morning scanning the website Federal Business Opportunities, or FedBizOpps, as it was known in the arms-dealing trade. Here the US government publicly posted contracts for goods and services that were open to online bidding, including billions of dollars’ worth of weapons. At lunchtime, Diveroli would take a walk to smoke a joint, then return to hunt for his first arms deal—one he might actually have a chance of winning. For months he worked deep into the night, searching, smoking, searching, smoking. Once a week or so, he’d meet up with Packouz and Podrizki and their other friends to hit the nightclubs along the beach to blow off steam, downing shots of Grey Goose, snorting lines of coke, hoping to get lucky.
To the outside world, the Miami Beach kids might have looked like any other rabble of layabouts. But Efraim Diveroli wasn’t an ordinary rebellious teenager; he was an incredibly talented businessman. What Diveroli possessed—and what possessed him—was a single-minded ambition. He didn’t regard FedBizOpps as a way to make money, though getting rich was supremely important to him. The website represented a deeper desire. The contracts posted on FedBizOpps were for rivets and forklifts and generators, but also for guns, grenades, and rocket launchers. Contracts were referred to as opportunities, but the term hardly captured their significance for Diveroli. Underneath the tedious-looking technical specifications and bureaucratic boilerplate, he saw the chance to live out his dream to become an international arms dealer.
Like most any teenage dude living on his own, Diveroli’s home was a sty, with dishes piled in the sink, dirty laundry tossed everywhere, and nothing in the fridge apart from beer and leftover take-out food. He dressed like a slob, wearing the cheapest jeans and T-shirts he could find. His shock of brown hair was always messy, framing a face with dark brows, a large nose, peach fuzz on his cheeks and chin, and an expression that combined class-clown humor with punk defiance.
All day every day, Diveroli parsed the Pentagon’s website looking for a way to obtain deals. The bidding on FedBizOpps was winner take all, so there was no consolation for coming close. Diveroli knew winning even one competition would require patience and persistence. But it cost nothing but time to bid on federal solicitations—and he had plenty of time on his hands. To Diveroli, competing on FedBizOpps was like rolling the dice in a vast game of craps.
One morning in the summer of 2004, Diveroli came across a posting for a contract for nine hundred thousand rounds of .223-caliber, fifty-five-gram ball ammunition to supply the Army’s Special Operations Command in Fort Bragg, North Carolina. Reading the terms of the offer, Diveroli had only a tenuous grasp of the mechanics of defense contracting. Single source, the posting said, which meant there would be only one winner of the contract. The term combined synopsis solicitation indicated that the government had specifically allocated funds for the purchase.
Diveroli thought that the contract was so small, in the context of Pentagon procurements, it might just fall through the cracks and not come to the attention of the large corporations who dominated the business. Two-two-three ammo, as the .223 rounds were called, were extremely commonplace bullets. It would be a matter of competing on price, Diveroli reasoned.
To get more information, Diveroli called the Army contracting officer listed online—Jerry was his name. Diveroli adopted a deep baritone to try to sound older. But his boyish enthusiasm was infectious as he asked Jerry about the specifications of bidding for the ammo deal. Jerry seemed impressed by Diveroli’s youth and obvious desire to learn. The Bush administration had recently
created rules to favor small businesses in federal contracts—and what company could be smaller than a one-man operation apparently run by a kid?
Jerry explained that bidding on federal contracts wasn’t like a normal business-to-business transaction. FedBizOpps had a vast array of rules, regulations, and laws. Dealing with the Pentagon presented logistical and practical considerations, like performance. The term referred to the record the government kept of how private contractors fulfilled the terms of the contracts—the quality, quantity, and timeliness of deliveries were all closely monitored. If a company failed to perform, Jerry explained, it would be noted in Diveroli’s record, and it could even lead to disqualification from future government deals.
As Diveroli listened to Jerry, he had some slight experience to call upon. When he’d been kicked out of school in Miami in the ninth grade, his parents had sent him to work for his uncle BK in Los Angeles. Diveroli had been caught selling cigarettes and was running with David Packouz and Alex Podrizki and their crowd of delinquent Orthodox Jewish kids who smoked dope around the beachfront. In LA, Diveroli would be expected to live by BK’s strict religious rules. For decades, BK had run a successful arms company called Botach, which sold guns and paramilitary paraphernalia to law-enforcement agencies across the country. Diveroli’s father also had a company that bid on police-supply contracts, though not for lethal weapons, so in a way government contracting and arms dealing were the family business.
At first the fourteen-year-old Diveroli had been a laborer in Botach’s warehouse, but within months he’d risen to become a salesman. By the time he was sixteen, he’d begun trading handguns like Glocks and Sig Sauers seized from criminals by police. Diveroli obtained the weapons from law enforcement, then resold them on “gunboard” websites like subguns.com, where collectors traded their wares. Diveroli wasn’t just good at his job—he was obsessed.
“From the beginning I was addicted to business,” Diveroli recalled. “When I was working for my uncle, I had my own office and a couple of Mexican guys working for me, receiving and shipping the orders that I was bringing in. I was selling everything from guns and boots to flashlights to police all over the country. I was spending hours every day in my uncle’s walk-in vault, where he kept a lot of machine guns, silencers, pistols.”
Then Diveroli came across the FedBizOpps website and clicked through the government contracts posted there. The contracts were called solicitations or requests for proposals. They were for billions upon billions in goods and services the federal government was buying every day. The biggest customer by far was the Department of Defense, which posted hundreds of billions of dollars’ worth of contracts. Toilet seats, screwdrivers, rocket-propelled grenades, tanks—the list seemed to never end. The website offered new opportunities every day; even obtaining a tiny fraction would amount to a fortune to a teenager.
“It was much bigger than I had ever imagined or hoped for,” Diveroli recalled. “I wanted a piece of it. I was going to bid on federal defense contracts. I was hell-bent.”
Diveroli began vying for contracts, using his uncle’s money to finance the deals, along with his various gun licenses. The arrangement was that Diveroli would split the profits 60–40 with his uncle, with the youngster receiving the smaller share. In weeks, Diveroli had begun to win small contracts on FedBizOpps. Within eighteen months, he calculated that he’d earned $150,000 in commissions.
“But there was tension between me and my uncle,” Diveroli recalled. “It was mainly to do with stuff outside the office—like me smoking weed with the guys in the warehouse, not keeping kosher, not following the Sabbath. I told him to leave me alone—to keep personal and business separate. But I could see real trouble was coming, so I demanded at least partial payment of what he owed me. He told me to fuck myself. Within forty-eight hours I was on a plane to Miami to start my own business. One thing I knew for sure was that I was never going to take shit from any tyrant ever again.”I
Back in Miami Beach and in business on his own in the summer of 2004, Diveroli spent days searching the Internet for the best price for the .223 ammunition. He didn’t tell the suppliers he approached about the contract on FedBizOpps, lest they bid on the deal themselves. Eventually he found a company in Kentucky that would sell him the ammo for $105 for each box of a thousand rounds, making the total price $94,500. Diveroli now had to calculate his profit margin. Try for too much and he’d lose the contract; bid too low and he’d miss out on potential earnings. He reasoned that an established contractor would command at least 10 percent profit. So Diveroli gave himself a 9 percent margin. He hoped the sliver of difference would tilt the deal his way.
Three days later, Jerry called: “You got it, kid.”
“It was the most exciting and scary moment of my life all at once,” Diveroli recalled. “On one hand, I’d just secured my first contract with the Department of Defense. On the other hand, I had no fucking idea how I was going to actually deliver the ammo. But that wasn’t going to stop me from trying.”
The first obstacle was money. Diveroli had a stake of $30,000. Not bad for an eighteen-year-old, but it wasn’t enough to pay the full price for the ammo up front, as the seller demanded. When the company refused to change its requirement for payment before delivery, Diveroli panicked. He had to find another supplier, one that would let him purchase the rounds on credit.
“I began frantically calling every ammo company in the United States, pulling off marathon eighteen-to-twenty-hour stretches of work,” Diveroli recalled. “Not only did I not have enough money—I didn’t have the product to supply.”
Diveroli finally located a shady outfit near Miami run by a pair of Cuban expats. They agreed to sell him the ammo for $114 per thousand. His profit would be nearly cut in half, but he no longer cared. He just needed to get the ammo to Fort Bragg ASAP—he needed to perform. If he failed to fulfill the contract, it would affect his ability to get more deals, and Diveroli was determined to build a stellar performance record.
Then this vendor also demanded full payment before shipping the ammo. With nowhere else to turn and time running out, Diveroli begged his father to lend him the money. Diveroli’s father had bid on government contracts as well, though for smaller law-enforcement deals, so he was familiar with the idea of having to pay for goods up front. Diveroli said he only needed the money for thirty days. The government wouldn’t renege on the contract, he promised; no creditor was more reliable than the US Treasury. Reluctantly, his father relented.
Within weeks, the rounds arrived at Fort Bragg. Countless hours of hard work had resulted in a profit of $4,500. Measly money, Diveroli thought, especially considering all the stress. But he knew something momentous had occurred, something with staggering implications. It was as if he had been initiated into a secret society—he was now a federal contractor, an arms dealer, a gunrunner.
“I was at the point of no return,” Diveroli recalled. “I was meant to do this shit, and that was what I was going to do.”
Diveroli’s company was named AEY, from the first initials of the three siblings in his family (Efraim, the eldest, was the E). His father had incorporated this shell company and allowed his son to use it. There was nothing illegal about what his son wanted to do, after all, even if he was extraordinarily young to go into the federal-contracting business. Indeed, Diveroli wasn’t old enough to qualify for a federal firearms license—the minimum age was twenty-one—so he begged his father to apply for one on his behalf. Once he had the company, the license, an Internet connection, and an ample supply of pot to modulate his manic nature, Diveroli had everything he needed to succeed—except money.
Diveroli figured he needed to have a minimum of $100,000 in cash to be a player on FedBizOpps. Planning to vie for big international defense contracts in Iraq and Afghanistan, he initially found backers willing to finance domestic ammunition deals that had nothing to do with the government—with the goal of building a war chest.
“I’d buy a hundred thousand dolla
rs’ worth of ammo from a company in New York with fifty grand down and fifty grand on net-thirty-day terms,” Diveroli recalled. “Then I’d chop the ammo into three different sales of forty grand each going to Arizona, Louisiana, and fucking Texas. That meant I had a profit of twenty thousand bucks. Not many eighteen-year-olds can make twenty grand in a week legitimately and consistently. But I was doing it.”
The truly big money wasn’t in arms dealing in America, Diveroli knew; it was in Iraq. As it happened, he’d picked the ideal moment to get into the arms business. To fight simultaneous wars in Afghanistan and Iraq, the Bush administration had decided to outsource virtually every facet of America’s military operations, from building and staffing Army bases to hiring mercenaries to provide private security for diplomats abroad. The Bush administration’s heavy reliance on private contractors was part of a broader ideological struggle to bring the efficiencies of private enterprise to government. At least that was the theory. With Bush in office, private military contracts soared from $145 billion in 2001 to $390 billion by 2008. Military-industrial giants like Raytheon and Lockheed Martin turned war profiteering from a crime into a business model. Why shouldn’t a stoner in Miami Beach get in on the action?
Diveroli had only a ninth-grade education, but even he could see that a fortune was to be made in the war on terror. As he amassed the capital he needed, he turned his attention to federal arms contracts for Iraq. Creating an Iraqi military alone was going to cost billions because the Americans were starting from scratch. The reason was in good measure the result of a strategic error of biblical proportions. In the heady aftermath of the invasion of Iraq in 2003, a former diplomat named Paul Bremer had run the Coalition Provisional Authority, the title given to the governing organization the United States was attempting to establish. Staffed largely with young neoconservative operatives from Washington, DC, with little or no foreign or military experience, the new authority tried to impose a radical form of free-market economics in Iraq—in direct contradiction to the authoritarian rule of Saddam Hussein, as well as the traditional tribal social order. As part of this initiative, in an attempt to rid the country of any hint of Saddam’s Ba’ath Party and the Republican Guard, Bremer had dismissed the entire Iraqi security apparatus, including every soldier in the land. The decision had enraged, humiliated, and deprived a livelihood to four hundred thousand Iraqi men; the blunder had directly led to the growing insurgency in the summer of 2004.