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The Stoner Arms Dealers: How Two American Kids Became Big-Time Weapons Traders

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In the beginning, Diveroli specialized in bidding on smaller contracts for items like helmets and ammunition for U.S. Special Forces. The deals were tiny, relatively speaking, but they gave AEY a history of "past performance" — the kind of track record the Pentagon requires of companies that want to bid on large defense contracts. Diveroli got financing from a Mormon named Ralph Merrill, a machine-gun manufacturer from Utah who had worked for his father. Before long, Diveroli was winning Pentagon contracts.

Like all the kids in their pot-smoking circle, Packouz was aware that Diveroli had become an arms dealer. Diveroli loved to brag about how rich he was, and rumors circulated among the stoners about the vast sums he was making, at least compared with their crappy part-time jobs. One evening, Diveroli picked Packouz up in his Mercedes, and the two headed to a party at a local rabbi's house, lured by the promise of free booze and pretty girls. Diveroli was excited about a deal he had just completed, a $15 million contract to sell old Russian-manufactured rifles to the Pentagon to supply the Iraqi army. He regaled Packouz with the tale of how he had won the contract, how much money he was making and how much more there was to be made.

"Dude, I've got so much work I need a partner," Diveroli said. "It's a great business, but I need a guy to come on board and make money with me."

Packouz was intrigued. He was doing some online business himself, buying sheets from textile companies in Pakistan and reselling them to distributors that supplied nursing homes in Miami. The sums he made were tiny — a thousand or two at a time — but the experience made him hungry for more.

"How much money are you making, dude?" Packouz asked.

"Serious money," Diveroli said.

"How much?"

"This is confidential information," Diveroli said.

"Dude, if you had to leave the country tomorrow, how much would you be able to take?"

"In cash?"

"Cold, hard cash."

Diveroli pulled the car over and turned to look at Packouz. "Dude, I'm going to tell you," he said. "But only to inspire you. Not because I'm bragging." Diveroli paused, as if he were about to disclose his most precious secret. "I have $1.8 million in cash."

Packouz stared in disbelief. He had expected Diveroli to say something like $100,000, maybe a little more. But nearly $2 million?

"Dude," was all Packouz said.

Packouz started working with Diveroli in November 2005. His title was account executive. He would be paid entirely in commission. The pair operated out of a one-bedroom apartment Diveroli had by then rented in Miami Beach, sitting opposite each other at a desk in the living room, surrounded by stacks of federal contracts and a mountain of pot. They quickly fell into a daily routine: wake up, get baked, start wheeling and dealing.

Packouz was about to get a rare education. He watched as Diveroli won a State Department contract to supply high-grade FN Herstal machine guns to the Colombian army. It was a lucrative deal, but Diveroli wasn't satisfied — he always wanted more. So he persuaded the State Department to allow him to substitute Korean-made knockoffs instead of the high-end Herstals — a swap that instantly doubled his earnings. Diveroli did the same with a large helmet order for the Iraqi army, pushing the Pentagon to accept poorer-quality Chinese-made helmets once he had won the contract. After all, it wasn't like the military was buying weapons and helmets for American soldiers. The hapless end-users were foreigners, and who was going to go the extra mile for them?

The Pentagon's buyers were soldiers with little or no business experience, and Diveroli knew how to win them over with a mixture of charm, patriotism and a keen sense of how to play to the military culture; he could yes sir and no sir with the best of them. To get the inside dirt on a deal, he would call the official in charge of the contract and pretend to be a colonel or even a general. "He would be toasted, but you would never know it," says Packouz. "When he was trying to get a deal, he was totally convincing. But if he was about to lose a deal, his voice would start shaking. He would say that he was running a very small business, even though he had millions in the bank. He said that if the deal fell through he was going to be ruined. He was going to lose his house. His wife and kids were going to go hungry. He would literally cry. I didn't know if it was psychosis or acting, but he absolutely believed what he was saying."

Above all, Diveroli cared about the bottom line. "Efraim was a Republican because they started more wars," Packouz says. "When the United States invaded Iraq, he was thrilled. He said to me, 'Do I think George Bush did the right thing for the country by invading Iraq? No. But am I happy about it? Absofuckinglutely.' He hoped we would invade more countries because it was good for business."

That spring, when mass protests broke out in Nepal, Diveroli frantically tried to put together a cache of arms that could be sold to the Nepalese king to put down the rebellion — heavy weapons, attack helicopters, ammo. "Efraim called it the Save the King Project, but he didn't give a shit about the king," Packouz says. "Money was all he talked about, literally — no sports or politics. He would do anything to make money."

To master the art of federal contracts, Packouz studied the solicitations posted on fbo.gov. The contracts often ran to 30 or 40 pages, each filled with fine print and legalese. As Diveroli's apprentice, Packouz saw that his friend never read a book or a magazine, never went to the movies — all he did was pore over government documents, looking for an angle, a way in. Diveroli called it squeezing into a deal — putting himself between the supplier and the government by shaving a few pennies off each unit and reselling them at a markup that undercut his competitors. Playing the part of an arms dealer, he loved to deliver dramatic one-liners, speaking as if he were the star of a Hollywood blockbuster. "I don't care if I have the smallest dick in the room," he would say, "as long as I have the fattest wallet." Or: "If you see a crack in the door, you've got to kick the fucker open." Or: "Once a gun runner, always a gun runner."

"Efraim's self-image was as the modern merchant of death," says Packouz. "He was still just a kid, but he didn't see himself that way. He would go toe-to-toe with high-ranking military officers, Eastern European mobsters, executives of Fortune 500 companies. He didn't give a fuck. He would take them on and win, and then give them the finger. I was following in his footsteps. He told me I was going to be a millionaire within three years — he guaranteed it."

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