Though Efraim Diveroli was just 21 and had less-than-stellar reviews on the few military contracts he had received, the U.S. Army awarded his small Florida business a $298 million contract to provide ammunition to security forces in Afghanistan.
It was a deal that would change Diveroli's young life. The money went to his head. He engaged in shoddy business deals, shipping faulty or inadequate supplies and munitions to U.S. troops and others overseas.
He became the target of multiple federal probes. A congressional committee that investigated the contract called it a "case study" of what's wrong with the government's procurement process. And ultimately, the deal put Diveroli behind bars.
Now, as he sits in the Seminole County Jail and awaits sentencing in an Orlando federal case, even Hollywood is taking note of this young gun dealer's story. Variety magazine recently reported that "The Hangover" producer Todd Phillips' company optioned feature-film rights to a Rolling Stone magazine article about Diveroli.
Diveroli did not respond to requests to be interviewed, and his attorney would not comment.
But his mother, Ateret Diveroli, said her son's story is one of a young life that unraveled. His quick wealth fueled drug use, gambling and an alcohol problem.
"It's like when somebody wins the lottery at a young age … that's what happened with Efraim," she said. "He threw everything away and got nothing in return."
Diveroli said her son, now 25, grew up in a close-knit Orthodox Jewish family in South Florida that taught him community and religion are what's important in life. So are dignity and respect.
"I was raised that your word is everything, and you live by the law," said Ateret Diveroli, who lives in Miami Beach.
But Efraim Diveroli chose a different lifestyle.
His mother said he started using drugs as a teen, and when he was about 16, she sent him to Los Angeles to work for her brother, who was in the munitions business.
"He's a very smart boy. He catches on very quickly," she said.
And he certainly caught on.
Contract at 18
What follows is Efraim Diveroli's story, pieced together through federal-court records, a 26-page investigative report from the U.S. House of Representatives Committee on Oversight and Government Reform, and interviews with his mother.
In 2004, when Diveroli was just 18, he was awarded his first U.S. government contract.
Diveroli, serving as president of AEY Inc., would eventually receive more than $11 million in contracts for weapons, ammunition or other military equipment. David Packouz, a masseur and aspiring musician, served as vice president of the company.
Diveroli's uncle, Rabbi Shmuley Boteach — a nationally known author who hosted the "Shalom in the Home" series on the TLC network — told a federal judge during a sentencing hearing that his nephew was a millionaire by 18. Diveroli's last reported address is a multimillion-dollar Miami Beach condo.
"No one stopped his excess," Boteach said in January, according to a hearing transcript. "He had a rocket strapped to his back with absolutely zero moral guidance."
But not all was well with AEY's government contracts.
AEY provided damaged helmets to the Multi-National Security Transition Command in Iraq, didn't deliver at least 10,000 pistols to security forces in Iraq and shipped poor-quality ammunition to U.S. Special Forces, according to the House report. The Defense Department ultimately terminated at least five contracts with AEY because the company performed inadequately.
In April 2006, AEY and Diveroli were flagged by the State Department because they were under investigation by Immigration and Customs Enforcement for contract fraud and numerous violations of the Arms Export Control Act.
Despite the warning and poor reviews, the government awarded AEY the $298 million contract in January 2007. The company was to provide various types of ammunition to security forces in Afghanistan. Under the contract, AEY was prohibited from delivering items made in China.
AEY subcontracted with Albania's Military Export and Import Co. for a portion of that deal. And that's where the trouble began. The ammunition provided by the Albanian company was manufactured in Chinese factories from 1958 to 1974.
When they learned about the Chinese ammunition, instead of canceling their contract with the Albanian company, Diveroli and his associates tried to conceal the ammunition's origin, court records said. They took the ammunition out of wood crates and metal tins that bore Chinese markings and repacked the items in cardboard boxes.
House inquiry
On March 27, 2008, The New York Times published an article detailing AEY's contract and the Chinese ammunition. The same day, U.S. Rep. Henry Waxman, D-Calif., opened an investigation.
The Committee on Oversight and Government Reform wanted to answer a basic question: How did a 21-year-old get a $298 million military contract?
The committee found there was questionable need for the contract to begin with; a "grossly inadequate assessment" of AEY's qualifications; and poor execution and oversight of the contract.
The investigative report, published in June 2008, said AEY underbid competitors without a secured source for products, and then attempted to find suppliers after the company received the contract. When AEY was unable to find items required under the contract, the company provided nonconforming substitute products.
A defense official referred to it as a "bait and switch" tactic.
The selection team for the contract didn't consider AEY's performance in other contracts with the departments of Defense or State, the report said.
The committee concluded in its report that the "Defense Department established deficient contract requirements and conducted a grossly inadequate assessment of AEY's background and qualifications … there was poor execution and oversight, resulting in the Afghan Security Forces receiving large quantities of 'unserviceable' ammunition."
In June 2008, Diveroli and his associates were indicted by a federal grand jury in Miami on wide-ranging fraud charges related to the ammunition contract. Diveroli pleaded guilty to one felony count, and the government agreed to dismiss more than 80 other counts filed against him.
While out of jail awaiting sentencing, Diveroli was ordered not to travel outside South Florida; to refrain from possessing firearms, weapons, destructive devices; and to abide by other conditions. But in July 2010, Diveroli contacted a licensed firearms dealer and manufacturer in Central Florida and offered a pallet of ammunition for sale.
It was a move that would make Diveroli the target of another federal criminal probe.
Calls recorded
According court documents, that dealer, suspicious of Diveroli's telephone call and offer, contacted an agent with the Bureau of Alcohol, Tobacco, Firearms and Explosives. During a series of recorded phone calls, Diveroli said he was no longer a federal firearms licensee because of a situation involving Chinese ammunition and his government contract.
But Diveroli said he sold domestic and imported ammunition and wanted to sit down with the dealer to discuss business-venture options. He also suggested he would supply ammunition to the dealer to sell in the Orlando area, court documents show.
In another recorded conversation, Diveroli said he didn't want direct involvement in the ammunition business, but that he kept getting drawn back into the activity.
"Once a gun runner, always a gun runner," he said.
On Aug. 12, 2010, Diveroli met an undercover detective and others at an undisclosed location in Brevard County where Diveroli instructed one of his associates to give ammunition to the undercover agent.
About a week later, Diveroli and his associates again traveled to Brevard County to meet with an undercover agent, court documents show.
During that meeting, Diveroli handled a semiautomatic pistol and a rifle and went to Walmart with his associates to buy ammunition. He was arrested that day.
Within months, Diveroli signed a plea agreement in the Central Florida case, admitting guilt to one count of possession of firearms and ammunition by a convicted felon.
In January, more than two years after his initial arrest stemming from ammunition contract, Diveroli was sentenced to four years in federal prison in the South Florida case.
Diveroli will find out Aug. 23 whether he'll serve an additional 10 years because of the federal charge out of Central Florida.
Ateret Diveroli said she hopes her son doesn't receive additional prison time. She also hopes he realizes what's important in life — and that isn't how much money is in the bank.
"He's paying a high price for his lifestyle," she said. "And that's why he's sitting in jail."
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