Playing with Fire

By age 18, Efraim Diveroli was an international arms dealer. By 21, he had landed a $300 million contract with the U.S. Army. And by 22, he was in handcuffs

On the afternoon of May 16, 2007, an Ilyushin Il-76 cargo plane rumbled down the tarmac at Burgas Airport in eastern Bulgaria, its hold packed with 110,000 grenades bound for Kabul, Afghanistan. The aircraft lifted off, climbed above the rolling farmlands to the west and the Black Sea to the east, and headed toward war.

Half a world away, on the first floor of a sun-dappled office building amid the palm trees of Miami Beach, Florida, a 21-year-old high-school dropout named Efraim Diveroli paced nervously. He was the president of AEY, Inc., a licensed arms dealer, and those were his grenades. The flight contained the first in a series of shipments his company had agreed to make on behalf of the U.S. Defense Department to supply the Afghan army and police force with hundreds of millions of rounds of ammunition. All told, AEY's contract was worth almost $300 million, and the company was late on delivery. Officials from the U.S. Army were calling to find out when the ammo would move. At 10:30 a.m., AEY's 25-year-old vice president, David Packouz, sent an e-mail to Pentagon contacts informing them of the plane's departure. But even with the Ilyushin aloft, no one was ready to celebrate. A lot could go wrong with a plane full of explosives flying into a war zone.

It wasn't until about midnight that the Ilyushin landed and a U.S. Army major in Kabul signed the shipment's certificate of conformance. By then AEY's staff had gathered in Diveroli's 28th-floor apartment in South Beach's Flamingo building. Diveroli uncorked a bottle of champagne. Touchdown in Kabul meant that AEY was poised to become a major player in the global arms market, making Diveroli a very wealthy man. Overnight, the tiny business he had launched in 2004 at the unlikely age of 18 had become the main supplier of munitions to the government of Afghanistan.

Five days later AEY's next shipment, of 7.62 mm AK-47 cartridges, took off from Rinas, Albania, and again champagne flowed. But this celebration was premature. By the time the cargo touched down, Diveroli was marked for ruin. He would become a symbol of a mismanaged war effort and the target of an embarrassed, vengeful Washington. And before it was all over, an AEY business partner turned whistle-blower would wind up dead on a deserted road in the middle of nowhere.

Efraim Diveroli was a chubby, hyperactive 16-year-old living in an Orthodox Jewish enclave of Miami Beach when he got his first gun, a Ruger .22 caliber rifle. But he had already developed what his grandfather Angelo Diveroli describes as a passion for firearms. "Ever since he was a little boy, I would take him to gun shows and he could identify every model of gun," Angelo recalls. "He's a genius."

In school Diveroli rarely displayed the same focus. At 17 he was kicked out of Hebrew academy for smoking pot. His Orthodox father, Michael Diveroli, who ran various small businesses, was furious. Efraim moved to Los Angeles to take a job with his uncle, who owned a law-enforcement-supply company. It was there, equipping police departments, that Diveroli learned how to bid on government contracts. It was also there that he met Ralph Merrill, a Vietnam vet who knew his way around the international arms market, buying and selling weapons in places like Israel, South Africa, and Croatia. Diveroli absorbed everything he could, and Merrill quickly noticed what he described in a letter as his young friend's "innovative thinking and absolute mission dedication." On his MySpace page, Diveroli later explained this period: "I had problems in high school so i was forced to work most of my teen years," he wrote, "and i probably grew up way to [sic] fast."

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.

That changed on the night of December 20, Diveroli's 21st birthday. When the valet attendant at his luxury apartment building failed to deliver his keys promptly enough, Diveroli allegedly punched him in the face and tackled him. Police called to the scene found a fake ID on Diveroli and charged him with felony possession of a forged document, in addition to misdemeanor battery. He avoided prosecution by entering a pretrial-diversion program. A conviction would have jeopardized AEY's arms-import license.

A month after Diveroli's arrest, the U.S. Army awarded AEY the coveted ammunition contract, explaining later that the company's proposal had represented "the best value to the government." It was a stunning accomplishment for a three-year-old enterprise, let alone one run by a dropout with no military background who weeks earlier couldn't legally purchase alcohol. An Army official told AEY it had beaten out General Dynamics, the world's fifth-largest defense contractor. In a matter of months, the company was negotiating deals with foreign defense ministers, holding meetings at embassies, and taking calls from Army brass. AEY had located caches of weapons in the old Eastern bloc that could be acquired on the cheap, and soon struck a deal in Albania for millions of 7.62 mm bullets. To oversee the operation there, Packouz hired his best friend, Alexander Podrizki, whose main accomplishment, at age 25, was that he had taught English in France for a year. AEY would pay him a $30,000 salary.

As unforeseeable problems arose, Diveroli and his crew tried to adapt, which sometimes pushed them into questionable company. Rather than buy what they needed directly from Albania, they chose to go through an entity called Evdin Ltd., which turned out to be little more than a mailing address in Cyprus—a shell company connected to a Swiss arms dealer, Heinrich Thomet, whose name was on a U.S. arms-trafficking watch list. Acting as a broker, Evdin bought the ammunition from Albania's national arms-export company, then sold it to AEY. Some suspect the arrangement was created to funnel kickbacks to Albanian-government officials.

Delays were another concern. Months went by and AEY couldn't get its shipments off the ground. Turkmenistan wouldn't give the company's planes flyover permission. Then AEY hired Turkmenistan Airlines, and wheels began to turn.

By springtime, nerves frayed, the boys at AEY had encountered one snag too many. On April 20, Podrizki e-mailed photos of crates containing the 7.62 mm bullets AEY would be flying out of Albania. When Diveroli opened the attachment, his heart sank. Stamped in red ink on the sides of each case were characters from another language. Diveroli couldn't read them, but he knew what they meant: made in China.

After the Tiananmen Square massacre in 1989, the United States had banned all arms transactions with the Chinese military. When Diveroli asked, the State Department made it clear that there was no way around the embargo without a presidential waiver. No matter—Diveroli had already decided to repackage the ammunition, which would save money on airfreight and obscure the cargo's Chinese origins. He hired an Albanian businessman named Kosta Trebicka, who for $280,000 agreed to bundle millions of bullets into new plastic bags and place them in cardboard boxes. Trebicka's Xhoi, Ltd., set up shop right on the grounds of the airport in Rinas.

The first few planeloads were dispatched without incident, but then Diveroli called Trebicka with bad news: He was getting high-level pressure to take Xhoi off the job. The request was coming from Ylli Pinari, the head of the Albanian Defense Ministry's arms-export company, who wanted his own man, Milhal Delijorgji, to take over. Delijorgji was known to hang out with the prime minister's son.

Trebicka fumed at being ousted in what he considered a brazen act of corruption. In a June 11, 2007, phone conversation taped by Trebicka, Diveroli conceded that he believed Pinari was linked to organized crime, and suggested the chain of malfeasance might lead all the way up to the prime minister's son. "I can't fight this mafia," Diveroli said. "This mafia is too strong for me. The animals go too out of control." He suggested Trebicka appeal to Pinari (who denies any mob ties): "Send one of your girls to fuck him. . . . Give him something in his pocket. . . . If he gets $20,000 from you, I can live with this."

Instead, Trebicka reached out to his friend Gary Kokalari, an Albanian-American anti-corruption activist. In early August 2007, Trebicka played the tape for Kokalari, who thought that Diveroli's reference to $20,000 could be construed as a violation of the Foreign Corrupt Practices Act, which prohibits U.S. companies from paying bribes abroad. Kokalari contacted the departments of Justice and Defense, as well as the New York Times, which happened to be investigating arms dealing in Eastern Europe.

In the meantime, Delijorgji took over Trebicka's operation, handling at least 30 more shipments, until the pace slowed in February 2008 when Army complaints about the shoddy packaging—the cardboard boxes were splitting open—and the low quality of the bullets led the DOD to insist on better shipping methods.

Perhaps Diveroli knew the scrutiny he was under, or maybe his luck had just run out. But at 5 a.m. on March 5, 2008, he was pulled over in his new $100,000 Mercedes S550 and arrested for drunk driving. A few days later, an explosion at an ammunition warehouse overseen by Delijorgji and Pinari killed 26 people and helped focus global attention on Albania's surplus-arms industry. Two weeks after that, the New York Times published an exhaustive report on AEY and its young president. The investigation not only exposed the Chinese origins of Diveroli's Albanian bullets but alleged that many of the cartridges were more than 40 years old, some so degraded they were unusable. The repercussions were swift and devastating. Government agents raided AEY's unmarked offices. An embarrassed Army quickly canceled its contract. And on June 19, a federal grand jury in Miami indicted Diveroli, Packouz, Podrizki, and financier Ralph Merrill on one count of conspiracy and 35 counts of committing a major fraud against the United States. In addition, Diveroli was charged with 35 counts of making false statements to a federal agency. All told, he faces 510 years in prison.

The indictment was followed by a June 24 hearing on AEY by the House Committee on Oversight and Government Reform, in which chairman Henry Waxman wondered aloud how a "company run by a 21-year-old president and a 25-year-old former masseur" could land such a contract. The answer, that there had been no limit stipulated in the agreement for the age of the ammunition—or the contractors—did not please him. Trebicka was now working with investigators from the Justice Department and another congressional oversight committee. Federal prosecutors met with him in Miami to take his testimony against AEY. But their aggressive questioning frightened him, and after one meeting he hired a lawyer, then bolted.

Back in Albania, Trebicka told friends he worried for his life. To escape the stress, he took an early-fall bird-hunting trip. On September 12, 2008, his body was found splayed in the middle of a remote dirt road in the southern woods. His truck was more than 100 feet away, its windshield crushed. A U.S. traffic-accident expert hired by the Albanian authorities to investigate reportedly determined that Trebicka was bounced out of the open-topped vehicle after it hit a dip in the road. But many in Albania are skeptical. "If it was an accident," Kokalari says, "it was one-in-a-million."

AEY's lawyers have argued that ammunition made in China but sold to Albania decades before Tiananmen does not violate the intention of the ban. The trial date is set for September 2009. During a December preliminary hearing, Diveroli sat in the front row of the courtroom, waiting to hear whether the feds would release some of his seized assets, including $3 million and his new Mercedes. "I don't care about the three mil," he said, grinning at his attorney. "I want my car back." (The government released the vehicle, along with $4.2 million.)

In the rear of the room, Packouz and Podrizki sat together, hunched over. Packouz had left AEY well before the indictments, after an argument with Diveroli over money. "I didn't get paid a cent on that contract," he said angrily. Outside, the two friends studiously avoided Diveroli, who headed off alone across an empty plaza. In five days he would turn 23. He had no plans to celebrate.

You Might Like

Powered by ZergNet