by Guy Lawson
They arrived at the rabbi’s house.
“How much money are you making?” Packouz asked.
“Serious money,” said Diveroli.
“How much?”
“That’s confidential information.” The car came to a stop.
“If you had to leave the country tomorrow, how much money would you be able to take with you?”
“In cash?”
“Cold, hard cash.”
“I’m going to tell you, buddy. But not to impress you. Not because I’m bragging.” Diveroli paused, as if he were about to reveal his deepest secret. “I have one point eight million dollars in cash in the bank.”
Packouz stared in disbelief. He’d expected a significant amount, given Diveroli’s incessant talk about money. But nearly $2 million? Diveroli was only twenty years old. He was a ninth-grade dropout.
Diveroli grinned at Packouz with a glint in his eye, as if to say, Can you fucking believe it?
“Dude” was all Packouz said.
/ / / / /
AEY now had a staff of two. The global headquarters was Efraim Diveroli’s oceanfront one-bedroom apartment. In its small alcove, the pair sat on opposite sides of a table. Diveroli and Packouz each had a laptop computer, one a beaten-up Dell, the other a junker Toshiba. A desktop computer sat on the table but it was useless because it constantly froze. Each also had a cell phone and a subscription to a discount Internet phone service. The bong lived on the coffee table in the living room—an essential home appliance.
“I figured I was going to make millions,” Packouz said. “I didn’t plan on being an arms dealer forever, like Efraim. I’d never even owned a gun.”
Their agreement stipulated that Packouz would work entirely on commission, with no salary. Account Executive was his title. Diveroli would stake his money to finance the contracts Packouz found on FedBizOpps. Packouz had a little money saved, so he figured he could live on that while he tried to make his first transaction—supplemented by the occasional massage gig.
But the first opportunity Packouz brought to the new relationship had nothing to do with arms. Before joining up with Diveroli, Packouz had come across an offer on Alibaba.com for a large number of Xbox 360s. At the time, the video-game console was a worldwide craze, with stores unable to keep up with demand. Packouz had found a supply quoted online at $320 per unit. Retail was $400. But he knew that Xboxes were being sold on eBay for double and triple the retail price. He figured he could buy the Xboxes online and sell them to local bigbox stores like Costco and Sears and make a fortune.
But there was a catch: the minimum order was one hundred thousand units and payment had to be made at the time of delivery. The total cost would be $32 million. Diveroli didn’t have anything like that amount of money. But if they could find someone to finance the deal they stood to make millions. For two weeks the pair worked the phones trying to find a hedge fund or high-net-worth individual willing to take the risk. They agreed that they’d split the profits fifty-fifty.
“I quickly saw how talented at business Efraim was,” Packouz recalled.
The broker running the deal on Alibaba.com didn’t want to tell Packouz and Diveroli where he was getting the Xboxes, lest he get cut out of the transaction. But Diveroli persuaded him to reveal his source by saying he had a guaranteed buyer and he’d split the profit with the broker. As soon as Diveroli had the name, he dumped the broker and moved on through a daisy chain of three other brokers until they reached the large electronics company behind the deal.
“Efraim was only a kid, but he was too smart for grown men,” Packouz recalled. “I was sure I was going to be rich. It was very exciting. But first we needed to finance the deal.”
“Gentlemen,” Diveroli said to a New York hedge fund they approached to lend them the money. “I need thirty-two million dollars, and I happen to be thirty million dollars short.”
Packouz smiled at Diveroli’s audacity. But no one was willing to back such a dicey deal relying on the word of two kids. Packouz was crestfallen. In days he’d gone from being a broke massage therapist to a multimillionaire and then back to penury. Being around Diveroli was dizzying—but in a thrilling way.
“Look, buddy, we tried to make a lot of money fast but it didn’t work out,” Diveroli said, consoling Packouz over a bong that evening. “You and me, let’s get started on some real business—the business I know.”
Diveroli logged on to FedBizOpps and showed Packouz what a Pentagon solicitation looked like. He explained the various meanings behind technical terms like single source, which indicated that the government was going to award the contract to only one bidder. Best value required the government to weigh a number of factors in awarding contracts, including that AEY was a small business and should thus be viewed more favorably than the large corporations who’d long dominated federal procurement.
Packouz was impressed by Diveroli’s command of the language of defense contracting. The solicitations ran to thirty or forty pages. Each word and phrase in the long, dense paragraphs of technical terms was pregnant with legal meaning. For a high school dropout, Diveroli was incredibly sophisticated when it came to business, Packouz could see.
Scanning FedBizOpps, it occurred to Packouz that he and Diveroli had the perfect education for the devilishly difficult task of navigating the website. As religious students in Hebrew school, they’d been forced to study documents that bore an uncanny resemblance to government contracts.
“Reading the Talmud as Orthodox Jewish kids had prepared us for this kind of work,” Packouz recalled. “The Talmud is a complex legal document written in a foreign language. You’ve got to study it line by line. There are references to other sections and other books, just like there was in the contracts. As a kid in the super-religious school I went to, I was forced to study the Talmud for four hours every day. Efraim and I had been taught how to really concentrate on concepts that other people would find mind-numbingly boring.
“There were a lot of suppliers who didn’t know how to work FedBizOpps as well as we did. I’m talking about big companies with experienced adult staff. Diveroli really had mastered the system, and he was teaching me the secrets. You had to read the solicitations religiously.”
Working alongside Diveroli, Packouz saw that searching FedBizOpps and working on winning contracts was all that he did. Diveroli never read a book or a magazine. He didn’t watch television or follow the news. His sole focus in life was poring over the website, looking for deals.
“Money was all he cared about,” Packouz recalled. “Literally. He didn’t talk about sports or politics or culture. He would do anything to make money.”
Packouz was mesmerized by Diveroli’s work ethic—if not his ethics. Even as Diveroli was occupied fulfilling the Iraq contracts he’d already won, he constantly bid on new contracts. Eighteen-hour shifts blurred one into the next. Days were spent contacting manufacturers in the United States to find the cheapest prices for weapons for AEY to bid on. Nights, the pair worked the phones with arms dealers in Eastern Europe, who had the Communist Bloc weapons the Army was desperate to get to Iraq. At two or three in the morning, Packouz would crash on Diveroli’s couch to save the time it took to drive to his studio apartment. As dawn broke, Packouz would wake to find his new partner hitting the bong and scanning FedBizOpps.
“Working with Efraim was a twenty-four-hour ordeal,” Packouz recalled. “I had never seen anyone work so hard. It didn’t matter if Efraim was tripling his money on a deal, he always tried to squeeze every last penny. One of his favorite lines was ‘If the other guy’s happy, then there’s still money left on the table.’ ”
A solicitation for night-vision goggles was a typical example of Diveroli in action. The manufacturer Diveroli contacted for a quote was a giant defense company. If the company’s executives knew about the contract on FedBizOpps, they would likely bid on it themselves, so Diveroli went for a diversion. He said he was buying thousands of goggles for an unnamed foreign government. He
said he was competing with a Chinese goggles manufacturer so he needed a low price. Then Diveroli held out the promise of more orders in the future.
Ordinarily, a corporation would protect its pricing structure, particularly for its network of dealers. But Diveroli knew how to play on the venality of the executives: promise excellent volume, no hassles, no harm, easy money. Lured by Diveroli’s sleight of hand, the manufacturer agreed to give AEY a price even lower than it gave to its own dealers. Adding his usual 9 percent profit margin, Diveroli won the contract by underbidding the competition—including the company’s regular dealers.
Trouble appeared when Diveroli actually placed the purchase order and the manufacturer learned that the customer was really the US Army. Furious, it refused to sell to him. Fine, Diveroli said, I’ll tell the government you reneged on the deal and substitute Chinese goggles. Diveroli was talking on the speakerphone, smiling at Packouz. They could hear the men on the other end of the line cursing. Who is this little motherfucker? Who does he think he’s dealing with? He’s going to snitch on us to the federal government? Diveroli stifled a laugh when they buckled and agreed to the sale.
“That’s how you squeeze yourself into the middle of a deal,” Diveroli said afterward.
Under Diveroli’s guidance, Packouz prepared a bid on a multimillion-dollar contract to supply hundreds of SUVs to the US Embassy in Pakistan. The size of the deal promised to make Packouz a huge profit. The scale of the stakes was one of the most astonishing aspects of FedBizOpps: just winning one medium-size contract could make Packouz a millionaire.
Packouz spent weeks tirelessly trying to source the vehicles, eventually finding a dealer in Karachi with a supply of cheap SUVs. But the solicitation required ongoing service for the vehicles, which AEY wasn’t able to provide. Packouz didn’t win the contract, but simply going through the bidding had been uplifting. FedBizOpps was like a casino, Packouz realized. Even if there was only a 10 percent chance of success—even if there was only a 1 percent chance—the sums of money were so large it seemed just a matter of time before he won a contract and made a fortune. After all, the living proof of that possibility was sitting on the far side of the table, talking to his drug dealer about scoring cocaine for that night.
In the early months of their new business relationship, Packouz won a couple of small contracts—seventeen thousand gallons of propane to an Air Force base in Wyoming, $70,000 worth of Second World War–era rifles to train Special Forces at Fort Bragg. The profits were tiny. Packouz was learning, watching, whetting his appetite, biding his time.
But dealing with Diveroli had a flip side. Packouz watched his friend with a sense of wonder—but also sometimes dread. Packouz clearly saw that Diveroli was a genius. He was also a liar. He misled directly, indirectly, compulsively—almost as if telling a lie were better than telling the truth as a matter of principle.
When the pair traveled to Las Vegas for an arms trade show, Packouz watched in disbelief as Diveroli received a call from a procurement officer in Iraq threatening to cancel a contract because of repeated delays in the delivery of a large shipment of helmets for the Iraq army. The first load of helmets had arrived late, and then they’d been sent to the Abu Ghraib prison, not Baghdad. The mistakes were typical of Iraq: transportation was incredibly dangerous, with roadside bombings occurring daily, and tracking goods was essentially impossible.
But the procurement officer in Baghdad didn’t seem to care about the realities on the ground, at least not in this instance. He told Diveroli he was going to kick AEY off the contract. This was worrisome. The government could cancel a contract for convenience, which meant it had changed its mind and was no longer going to purchase the goods. The other form of cancellation was for cause. Losing a contract for cause was a serious matter. It could be disastrous for AEY’s performance rating with the Pentagon; one of the main considerations the government used in awarding contracts was prior performance; a canceled contract would be a permanent blot on the company’s record. Diveroli needed to persuade the procurement officer to change his mind. The line was poor. Standing in the middle of the SHOT Show—a huge gun show held in a cavernous convention center in Vegas—Diveroli had to yell into his cell phone to be heard.
“Efraim launched into one of the most intricate and heartfelt sob stories I’d ever heard,” Packouz recalled. “He gave a barrage of excuses for the delayed delivery. It was everyone else’s fault.”
Diveroli begged the procurement officer not to cancel the contract. His voice was shaking and his eyes were welling with tears. He said that if the deal fell through he’d be ruined. His tiny business would go into bankruptcy. He was going to lose his house. His children would go hungry. His wife would leave him. He was begging for his life—and all of it was completely made up. But he was totally convincing. The procurement officer backed down.
“I’d never seen more skillful lying,” Packouz said. “I didn’t know if Efraim was psychotic, or if he was acting. But he believed what he was saying—at least while he was talking.
“There was no doubt that Efraim knew how to make money, and how to get people to do what he wanted. I figured that after I made a couple of million I’d go out on my own. I told myself that I would never deal dishonestly with anyone myself.”
It seemed to Packouz that Diveroli was so consumed he’d come to inhabit an alternate reality. His conversations often sounded as if he were acting in a scripted movie, like Diveroli’s collection of sayings. Some were taken from Lord of War, one of the rare movies he took the time to see—not once or twice but over and over. “Where there’s a will, there’s a weapon,” Diveroli would say. Or: “There are three basic types of arms deals—white being legal, black being illegal, and my personal favorite, gray.”
Other sayings were his own. Packouz began to write them down, partly for entertainment, partly to keep track of the morality—or amorality—of the world he now inhabited. “You can fuck almost everybody once and get away with it,” Diveroli would say. Or: “I don’t care if I have the smallest dick in the room, as long as I have the biggest wallet.” Or: “If you see a crack in the door, kick the fucker open.” And: “Once a gunrunner, always a gunrunner.”
“Efraim was still a kid, but he didn’t see himself that way,” Packouz recalled. “He would go toe-to-toe with high-ranking military officials, Eastern European mobsters, executives for Fortune 500 companies. He didn’t give a fuck. He’d take them on and win, and then give them the finger. And I was following in his footsteps.”
Once a week, or so, the pair hit the clubs of South Beach. Diveroli kept his cocaine in a small plastic bullet, retiring to the bathroom every half hour for another snort. After pounding Grey Goose, Diveroli would be high and drunk and ready to pick up a girl. His opening lines were beyond terrible: “Hey, baby, everybody’s got a price, so what’s yours?” Or: “Your pants are like a mirror, baby—I can see myself in them.”
The Rodney Dangerfield–like approach often ended in disaster. Once, reaching out to grab the backside of a passing woman, Diveroli said, “You and me, baby, the backseat of my car in ten minutes.” The woman’s boyfriend wasn’t amused. A mountain of a man, he grabbed Diveroli by the scruff of his neck and threw him against the wall. Packouz jumped in the middle.
“He’s drunk,” Packouz said. “He’s really, really drunk. He didn’t mean anything by it.”
Kicked out by the bouncers, Diveroli was giddy as they walked to his car.
“The world is full of shitheads,” Diveroli said, throwing his arm around Packouz. “You’re the only guy I can trust. I consider you my best friend. You watch, we’re going to become billionaires one day. You and me, we’re going to be flying around in our own private jets soon. You and me, we’ll come back and crush those motherfuckers.”
Packouz was unnerved by Diveroli’s calling him his best friend. Packouz certainly didn’t feel the same way. But he wasn’t going to express his ambivalence. Not when the promise of riches was so temptingly close
.
One evening, Packouz convinced Diveroli to go to his favorite karaoke joint. Packouz wanted to sing, not just get wasted. Diveroli loved the idea, if not the idea of staying sober. The Studio was an underground bar with no cover charge and big crowds on the weekend. When Packouz went onstage, he sang U2’s “With or Without You,” followed by Pearl Jam’s “Black.” As always, he took the performance seriously, singing gently, careful to stay in key, and drawing a nice round of applause when he was done.
Diveroli jumped onstage with mock bravado. His voice was loud and completely off-key—for comic effect. He sang “It’s My Life” by Bon Jovi, followed by “Rape Me” by Nirvana. For an encore, he sang Tim McGraw’s country power ballad “Live Like You Were Dying.” As he bellowed out the tunes, Diveroli tore off his shirt and gyrated his hips in mock-rock-star fashion, garnering whoops and hollers.
Afterward, Diveroli went to the bathroom to do a line of coke. Walking out of the men’s room, he saw an attractive young Asian woman sitting on a couch by herself. Diveroli sat down next to her.
“So, do you do coke?” he asked.
The woman appeared shocked, but she answered. “Well, not in a really long time.”
“Do you want to?”
“Why not?”
The pair vanished into the men’s room. The woman, Suzie,I was a college student. She gave Diveroli her number, but when he called her the next day she didn’t pick up. Diveroli dialed and redialed and redialed until she relented and answered. He persuaded her to have dinner that night. So began a tumultuous two-year relationship.
In contrast to Diveroli, Packouz was shy around girls. He was twenty-four years old at the time and he’d had only one serious girlfriend. But his luck was about to change. Entering the lobby of an upscale condo called the Flamingo in Miami Beach one afternoon, he caught the eye of a pretty young woman. Packouz was carrying his massage table on his shoulder. He’d continued to advertise his services on Craigslist to support himself until he made his fortune with Diveroli. The woman was wheeling a massage table on a cart. She was lithe and lean and looked to be around his age. Packouz had been rushing to his appointment, but now he slowed down.