By 2004, the privatization of the wars in Iraq and Afghanistan had reached a peak, and Diveroli saw opportunity in the flood of contracts coming out of Washington. With Merrill offering to bankroll him, Diveroli moved back to Miami and took over AEY, Inc., a dormant company his father had incorporated in 1999 as a label-printing business. He appointed himself president and began bidding on a range of contracts, supplying everything from ballistics vests to forklifts. His inexperience was a liability at first. The government yanked no fewer than seven jobs from AEY because of poor performance. Chosen to supply the Iraqi military with thousands of Beretta pistols, AEY explained delays by claiming a plane crash had destroyed important papers. The procurement officer in charge called Diveroli a liar and canceled the contract.

Within a year, though, the fledgling company was juggling dozens of contracts, its performance deficits undetected by overextended Department of Defense regulators. For every problematic job, AEY completed 10 successfully, thanks to the 19-year-old's preternatural drive. "This guy was not a normal kid," recalls one former associate. "To say he was out of his league is not accurate. He's very smart, and a ruthless businessman. Ruthless."

To keep up, Diveroli needed help. His boyhood pal David Packouz was also struggling to find his way. Packouz's experiments with drugs during high school had led his family to ship him off to Israel. After his return, he attended college for two semesters, then left to become a massage therapist. When the two ran into each other in mid-2005, Diveroli was no longer the goofy kid Packouz remembered from temple. There was a confidence about him. "I saw the potential," Packouz says. "Efraim was very successful." Later that year, Packouz joined AEY.

That meant working 18-hour days scouring the Internet for proposals, contacting foreign governments and arms traffickers, and aggressively pushing for the best price. And it paid off. By the end of 2006, AEY had won 149 contracts worth an estimated $10.5 million. Diveroli leased a black Audi A6 and found a nicer apartment, but otherwise he lived frugally. He preferred a local bar to the lavish South Beach club scene.

That fall, AEY bid on the biggest job in its short history: a U.S. Army contract worth $298 million to procure 52 different types of ammunition—for everything from tanks to pistols—for the Afghan forces in their escalating struggle with Taliban fighters. AEY was competing against at least 10 well-established companies and offered a lowball estimate.

But Diveroli's growing obsession with work was starting to make him volatile. It seemed like every time he got into his car he was pulled over; from 2004 to 2006 he racked up 14 tickets, for speeding, reckless driving, and other violations. According to a Miami Beach police report, an acquaintance said Diveroli threatened to shoot him in the head during an argument over a girl. "I have guys on my payroll that will do the job," he allegedly boasted. An ex-girlfriend requested an order of protection because, she said, Diveroli was harassing her. And police were called yet again after a neighbor witnessed him fighting with a different girlfriend. No charges were filed.