My $300 Million Mistake: Insider Secrets Revealed | David Packouz DSH #739

Summary

Digital Social Hour: "My $300 Million Mistake: Insider Secrets Revealed" with David Packouz

Host: Sean Kelly
Guest: David Packouz
Release Date: September 20, 2024
Episode: #739

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Introduction and Background

In this compelling episode of Digital Social Hour, host Sean Kelly welcomes David Packouz, whose life story inspired the hit movie War Dogs. David recounts his early days and how he reunited with his childhood friend, Ephraim Deveroli, setting the stage for their infamous venture into government contracting and arms dealing.

Notable Quote:

"People who don't know me, the movie War Dogs was based on some events in my life." — David Packouz [00:01]

Entry into Government Contracting

David describes his initial foray into government contracting in 2006. At 22, he was studying chemistry, working as a massage therapist, and running small side businesses selling SD cards and bed sheets. His reunion with Ephraim, a gun enthusiast with a knack for sales, led to a partnership where David leveraged his logistical skills to collaborate on government bids.

Notable Quote:

"I thought, man, this guy knows how to make money. He knows something I don't. So I told him, I'm in, teach me." — David Packouz [04:28]

The $300 Million Contract and Ammo Controversy

In the aftermath of the 2003 invasion of Iraq, Ephraim secured a massive solicitation from the U.S. government worth approximately $300 million to supply munitions. While successfully delivering high-quality ammunition to Afghan forces, the partnership hit a major snag when they discovered that some ammo originated from China, violating U.S. embargo regulations established in 1989.

Notable Quote:

"We made the fateful decision, turned out to be a very bad decision, to repackage the ammo and to put it into these plastic bags and cardboard boxes instead of the original wooden crates that had all the Chinese markings on it." — David Packouz [12:45]

Betrayal and Mafia Involvement

Ephraim's relentless pursuit of profit led to tensions within the partnership. When costs revealed that their middleman, Henry, was doubling his profit margin, Ephraim decided to cut Henry out of the deal. This decision enraged Henry, who exposed their operations to the New York Times and the FBI. Subsequently, Costa, the repackaging manager, was found dead in a suspicious car accident, rumored to be orchestrated by the Albanian mob connected to Ephraim.

Notable Quote:

"Costa ends up dead. In a very suspicious car accident." — David Packouz [16:29]

Legal Consequences and Sentencing

Following the FBI raid of their office, David and Ephraim faced severe legal repercussions. David ended up on house arrest for seven months, while Ephraim received a four-year prison sentence after being caught attempting to possess firearms as a convicted felon. The U.S. government pursued fraud charges, especially due to falsified documentation regarding the origin of the ammunition.

Notable Quote:

"Each document you submitted to the government is an act of fraud." — David Packouz [28:48]

Post-Incarceration Ventures and War Dogs Academy

After his release, David focused on rebuilding his life and sharing his experiences. He launched War Dogs Academy, aimed at teaching others the intricacies of government contracting. This initiative emerged from a surge of interest during the pandemic, as many sought opportunities in government contracts for medical supplies.

Notable Quote:

"We could teach people how to do government contracting." — David Packouz [36:45]

Other Business Ventures

David's entrepreneurial spirit extended beyond government contracting. During his house arrest, he invented the Beat Budd Buddy, a foot-operated drum machine pedal for musicians, leading to the creation of Singular Sound. Additionally, he co-developed Instafloss, a device designed to floss teeth efficiently in just 10 seconds using multiple water jets, revolutionizing dental hygiene tools.

Notable Quote:

"Instafloss uses 12 water jets... you just slide it across your teeth and it gives you a full floss in seconds." — David Packouz [40:01]

Conclusion

David Packouz's journey from a struggling young entrepreneur to a $300 million government contractor, and ultimately to a reformed businessman and inventor, offers profound lessons in ambition, ethics, and redemption. His candid recounting of past mistakes serves as a cautionary tale and a source of inspiration for aspiring entrepreneurs.

Notable Quote:

"I wanted to move on with my life and leave all that behind." — David Packouz [36:36]

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Key Takeaways:

• The complexities and risks of government contracting, especially in the arms industry.
• The impact of unethical decisions and the inevitable consequences of legal breaches.
• The possibility of redemption and the importance of leveraging past experiences to create positive future ventures.

For more insights and detailed discussions, tune into this episode of Digital Social Hour with Sean Kelly and David Packouz.

Transcript

[A]

People who don't know me, the movie War Dogs was based on some events in my life. Jonah Hill plays my former partner, Ephraim deviroli. The way I got into it, this was back in like, 2006. 2006, yeah. I knew Ephraim from, like, when we were kids. I bump into him and he asked me, like, what I was doing these days. And teenage boys, they either get obsessed with guitars, cars, sports or guns, right? So I was a guitar guy, I'm a musician, but he was a gun guy. He got obsessed with guns.

[B]

All right, guys, we are in la. Got David Packhouse here today. We're talking War Dogs, we're talking arm dealing, and we're talking what you're up to now. Yeah. Thank you. Quite the story, man.

[A]

Thank you. Thank you for having me.

[B]

Yeah, I know normally your shows are three hours, but we'll have to be a little quick today. Could you give people watching this that don't know your story a quick recap?

[A]

Yeah. So for people who don't know me, the movie War Dogs was based on some events in my life. In the movie, I'm played by Miles Teller and Jonah Hill plays my former partner, Ephraim Deveroli. So the way I got into it, this was back in like, 2006. 2006, yeah. I actually late 2005, I knew Ephraim from when we were kids. We met each other in synagogue. Both our families are Jewish. And then we lost contact with each other. And I was. When I was about 22, I was going through. I was. I was in college, studying chemistry, working part time as a massage therapist. I also was. Had a few side businesses selling SD cards on ebay and as well as bed sheets. I was importing from Pakistan and selling to, like, nursing homes and hospitals. And I bump into him and he asked me, like, what I was doing these days and. And he told me that. And I told him that, you know, about the bed sheets and the SD cards and everything. And he's like, oh, that's kind of similar to what I'm doing these days. You know, I'm doing government contracting. I buy and sell stuff to the US government. A bid on contracts. The way the government works is when they want to buy something, they have to put it out for open competition so that they get the best possible price. And so he was bidding on these contracts and he. The way he got into it is, is when he was 16, he got kicked out of high school for smoking weed. And his parents decided that, you know, if he's not going to take the rule seriously. They sent him into the workforce to show him what life is about. And so they sent him off to his uncle who lives in la, owns a big pawn shop. And his uncle put him to work. He's really good at sales, really good at talking. So he got. And he, he got obsessed with the guns. You know, like teenage boys, they either get obsessed with guitars, cars, sports or guns, right? So I was a guitar guy, I'm a musician, so. But he was a gun guy. He got obsessed with guns and worked for his uncle for about two years. His uncle was bidding for government contracts as well, and that's how he learned how to do government contracting. And then he had a falling out with his uncle. They both claimed the other screwed the other, you know, and they're both scumbags. So I believe in both. But he comes back to Miami, starts his own company when he's like 18, and starts bidding on contracts. And this is in like 2004, 2005, right after the invasion of Iraq. And the United States is rebuilding Iraq after destroying it. And they're putting out all these contracts for all the materials they need. And one of the things they need to do is build up an army and police force for Iraq so that it could become like an independent country again. And so he, because he was a gun nut, he had really good connections and knowledge of the gun industry and starts bidding on these contracts, starts doing really well, works on his own for about a year. And that's when we bump into each other. And so when I told him what I was doing, he's like, you know, that's very similar in skill set wise to what he was doing. You know, finding suppliers overseas, arranging logistics, figuring out the financing, et cetera, et cetera. And he says to me, he's like, you know, I bet I'm making way more money than you, so maybe you should come and work with me, because I need a partner. I need, you know, someone who's smart, motivated, etc, and so I asked him, well, how much money have you made? And he says to me, he's like, I'm gonna tell you, but only to inspire you. I'm not bragging here, okay? And he logs into his bank account and he shows me his bank account, and he has $1.8 million in the bank. And he was 18 years old at the time after working for like less than a year. And so I was like, holy crap. I mean, I was doing well with my businesses and stuff, but not that well, that's crazy. And so I thought, man, this guy knows how to make money. He knows something I don't. So I told him, I'm in, teach me. And so we go in.

[B]

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[A]

LinkedIn the place to be to into the business. At first I was going to not even focus on the arms. I was going to try to expand the business by bidding on fuel contracts. So my first contract that I won was for like 40,000 gallons of propane delivered to the air Force to a base in Wyoming.

[B]

Wow.

[A]

Yeah.

[B]

I mean, you even find out where.

[A]

To get that Google, you know. For real? Yeah, you can find everything on Google and also trade directories and things like that. And as well as asking people for references if, if you know they can't help you, you're like, you know where I could find this and then they might refer you to somebody. So a lot of, a lot of grind, a lot of legwork, a lot of building up very detailed spreadsheets of potential suppliers and where they're located and how much it's going to Cost to move from A to B, you know, because it needs to be delivered and the price needs to include delivery. So you have to figure out the logistics as well. And so yeah, so that first contract I made, we were splitting it 50, 50, I made like eight grand, but it was like two and a half weeks worth of work, so not bad at all. And then I started working on a few other things and then he came to me and he said, you know, I've got this like gun parts contract that I already won, but I don't want to work on, so why don't you do the delivery on it? It was a very rare, it was like 130 different items. It was going to the special forces and he had bid it at a very high price because he knew no one else wanted to deal with this pain in the ass contract. So I started working on that and that was my first like arms related contract. Worked on that for a few months. It took a little while to track down all these rare gun parts that the special forces needed for training. And then I bid on a bunch of contracts that I lost. Because you more often than not lose in government contracting. It's kind of like a casino. You know, you bid on something and you don't know how competitive you are because the government doesn't tell you.

[B]

Oh, so you can't even see what other people are bidding?

[A]

No, no, I mean, and for good reason because otherwise you would not give the government the best price. Because if you knew that you're the by far the lowest price, you're going to raise your price. So it's illegal for the government to tell bidders what the, what the. Your competition is bidding or even if you have any competition.

[B]

Right.

[A]

You may be the only person bidding on the contract, but they're not allowed to tell you that because they want you to keep your price as low as possible.

[B]

That makes sense.

[A]

So, yeah, so I lost a few, I lost a few things I worked on. And then after about like eight, nine months of working with him, we see this enormous solicitation, that's what they, the government calls it when they post what they want to buy on the website. The website is sam.gov if anyone wants to check it out. And so I, so we see this enormous solicitation for like 30 different items, all munitions and it's all Warsaw Pact munitions, which is, there's two major different types of weapons in the world, weapon systems. There's Warsaw Pact, which is the former Soviet Union, and there's NATO, which is the west, right. NATO uses the M16. Warsaw Pact is AK47. You know, they're not compatible. The, the, the ammunition, you know. So the United States at the time was trying to, it was like mid-2006. Bush administration was super unpopular. They wanted, they, they figured the next administration was going to be a Democratic administration, which they were right. Obama. But they thought that, that the Democrats would pull out of Afghanistan immediately. They were wrong about that. Took until Biden. But because they thought they would pull out immediately, they, they were going, they decided they wanted to arm the Afghans to the teeth so that the, the country of Afghanistan wouldn't fall back into the hands of the Taliban. Right.

[B]

Yeah.

[A]

Turned out not to really help them that much, you know, because now the Taliban has all the US Humvees and our bullets and all that. So anyway the, so they put out this solicitation for like it was a massive, massive 300 million, right? It ended up being about 300 million. We, we bid on it because we technically qualified for it. We didn't actually think we were going to win it because we were competing against like General Dynamics and ATK Systems. These are like multi billion dollar publicly traded companies. But we technically qualified for it because we had the past performance, the history of delivering similar items to Iraq in much, much smaller quantities. But that showed the government that we could do this kind of thing. And so eventually I worked my ass off on that for a while. Eventually we won this contract and started delivering on it. And then we discovered that some of the ammo that we were planning on delivering on it, that ammo for the AK47, 762 by 39 that we were buying from Albania, we discovered that it had originally come from China. And when we went over there to inspect it, and the reason this was a problem was because our contract specifically said that we couldn't deliver any Chinese ammunition, either directly or indirectly. Was the, the terms of the contract. And the reason they put that in there is because there's an arms embargo against China that the United States put in place in 1989 after the Tiananmen Square massacre. The Chinese suppressed a pro democracy movement and to punish them, the United put them on a banned list. So we couldn't. It's illegal for US Companies to buy or sell military equipment with the Chinese since 1989.

[B]

Wow.

[A]

Yeah. Now the thing is, is that if you had bought military equipment from them in 1988 or before when it was legal it, and you export it from China, it still remains legal. So the ammo that we were getting from Albania had been shipped to the Albanians from China in the 70s.

[B]

Oh, wow.

[A]

So it didn't really violate the terms of the embargo. But our contract with the US army didn't mention the embargo. It just said no Chinese period. So we were thinking, well, if it doesn't violate the terms of the embargo, maybe we could ask the government to give us a waiver to allow us to ship this ammo. But then we thought, well, maybe they're going to say something along the lines of that it's not really fair to the competition. They had to bid non Chinese ammo. So we're going to take this $300 million contract away from you and you could bid on it again. And we didn't want to risk a $300 million contract, so we made the fateful decision, turned out to be a very bad decision, to repackage the. The ammo and to put it into these, like, plastic bags and cardboard boxes instead of the original wooden crates that had all the Chinese markings on it. Anyway, so we start delivering this, that the government is thrilled, right? The. The army is thrilled. They. The ammo is high quality. They were very desperate for it at the time because our Afghan allies were running out of ammo. And so we start delivering. They're very happy. And then Ephraim, right, He's always trying to squeeze every penny out of every deal.

[B]

That's your partner?

[A]

That's my partner. The guy. The guy who's played by Jonah Hill.

[B]

Yeah.

[A]

He decides he wants to. So we were buying the Albanian ammo through a middleman named Henry. In the movie, he's played by Bradley Cooper. He's a Swiss arms dealer, and he had set this up. He had connections with the Albanian politicians, and that's how he got this. This connection. And so Ephraim decides that he wants to he. The guy who was doing the repackaging for us. The. The guy who was. Do the. He. The guy was doing the repackaging for us. His name was Costa, and he owned a. A cardboard box factory. That's how we found him. And he also supplied the labor to do the repackaging. So he asks Costa to find out if he had. If he knew anyone in the Ministry of Defense of Albania. And Costa said, yeah, you know, I have like a. A cousin who works there. It's a very small country, Albania. And so he's like, can you ask your cousin if he could find out what the Ministry of Defense is getting paid for our amm? We were paying Henry, and Henry was paying the Ministry of Defense.

[B]

Got it.

[A]

So we didn't know. We. Efraim wanted to know what his profit margin was, right? So Kosa comes back a few days later, and he's like, yeah, they. They say. He said that they're getting paid 2 cents around. And we were paying Henry 4 cents around.

[B]

Wow.

[A]

So Henry's doubling his money. And Ephraim was pissed. He's like this. He's screwing us, you know, and now we were making about the same amount of profit, you know, but like, he didn't care about, you know, like. But so he was like, I'm going to Albania. I'm going to cut this motherfucker out of the deal, right? Goes to Albania, starts talking to the Albanians. They. They're like, we're not cutting Henry out of the deal, right? But we can make a, you know, a special deal for you, you know, to give you the. The lower price, right? They. They're like, we know you're paying this guy Costa to do this repackaging. Why don't you give us that contract to do the repackaging? We'll make money off the repackaging, and then we can give you a little discount on the ammo. So that way everyone wins. And so Ephraim says, that's a great idea. That guy's fired. You're hired. Let's go. Right? Ephraim comes back to Miami. Costa calls me up, and he's like, hey, you know, I understand this is business. You're changing providers for the repackaging operation. But, you know, I got stuck with 20 grand worth of boxes. Can you guys just buy that from me? You're going to need it anyway way, right? So I told Ephraim, you know, why don't we buy these boxes? And Ephraim says, ah, you know, the new guys, they don't want to deal with them. They already got their boxes. That guy. I'm like, why don't you just pay him anyway? Because he knows about everything, right? And Ephraim's like, nah, he's not going to do anything, that guy. And so that guy Costa, he got really pissed, and he called up the New York Times.

[B]

Wow.

[A]

And told us. Told them what we were doing. And he called up the FBI and he told them what we were doing. And his biggest mistake is he called up the local Albanian press and told them that the Albanian politicians were getting kickbacks from this deal, which was probably true. I mean, we didn't know, but there's probably a reason that they didn't want us to. They didn't want to cut Henry out of the deal. Right. Because he was, you know, part of that doubling of his price, you know, part of that profit is probably going to sell the. You know, the politicians, we never really knew, but we assume so. And so about a week after the Albanian press publishes their article, Costa ends up dead.

[B]

Holy crap.

[A]

Yeah. In a very suspicious car accident. He's, like, in a empty field on a dirt road, and somehow his car had run him over.

[B]

What?

[A]

Yeah, yeah. Like, he was found, like, lying face dirt, face down in the dirt with his car, like. Like 30ft away from him. And he had been run over by his car. Yeah. So nobody really thinks it was an accident, but they. They made it look like an accident. This kind of the Albanian mob is knowing for doing. Is known for doing that kind of thing. And we found out later the Albanian mob was involved. Actually, Ephraim had met with one of the leaders of the Albanian mob. Not that he knew he was the leader of the Albanian mob at the time, but he's the guy who offered him that deal.

[B]

Wow.

[A]

So anyway, about around this time, Ephraim, like, comes into my office and he, you know, the contract is going well, right? We're delivering, like, three, four aircraft into Afghanistan every week. Week. And the army is thrilled. They're getting the ammo. Ammo is high quality. Etc. And Ephraim comes into my office and he's like, you know, a lot of the guys around the office, because at this point we had about 15 employees. He's like, a lot of the guys around the office telling me that you're, like, not pulling your weight around here anymore. And I'm like, what are you talking about? The Afghan contract's going well? And he's like, yeah, yeah, the Afghan contract's going well. But, you know, we've. We're really struggling with these Iraq contracts, and you're not helping with that. And I said, but I'm not part of the Iraq. I'm working on a commission, only. I'm not like a salaried employee where I have to work on everything, you know, so he's like, yeah, but, you know, if. If our Iraq contract fails, then the entire company could go down, and then that takes your Afghan contract with it. And so I said, well, you want to give me a piece of the whole company? I'll work on everything. And he says, you know what? I'll tell you what, I wouldn't offer this to anyone else, but, you know, David, you're my best friend. And your hard work is a good. Is a big part of where. Why AUI is where AUI was the company, you know, why AUI is where it is today. And so I'm going to make you an offer I wouldn't make to anyone else. I'm going to offer you a very generous $100,000 a year executive salary plus 1% of AUI. And I told him, well, you know, the Afghan contract is going to make us like 90% plus of all the money this company is going to make over the next two years. And, and I'm supposed to get 25 of the Afghan contract, so I'll stick with 25% of that instead of your 1%. And he says to me, he's like, well, how about zero? You know, take it or leave it because that's the only offer on the table. Well, he said, go fuck yourself. I'll see you in court. I was like this close to punching him in the face.

[B]

Damn.

[A]

Yeah.

[B]

That's your childhood best friend too.

[A]

Yeah, I, it was, I mean we were, we were like friends. I wouldn't say we were best friends, you know, but like we were friends when we were kids and then we like lost contact, you know, throughout our teen years and then he turned into someone else.

[B]

You know, the money changed him.

[A]

Yeah, totally.

[B]

Wow.

[A]

And like, I should have seen it coming really, because he, I'd seen him screw over a lot of other people and you know, I always told myself, oh, he's not gonn do that to me, you know, and, and like you were too loyal. I mean, and, and like I, I knew he was a scumbag and I always taught my, told myself, well, I'm not going to be a scumbag and I'm going to make money, I'm going to get out and then I'm not going to work with this guy anymore, you know, but, but yeah, it was just eluding myself. So, so yeah, so I left and I, you know, start negotiating. I'm getting ready to sue him. Negotiating with him. We agree to a very small amount of compare. He owed me like 5 million.

[B]

DOL he get the money from that contract?

[A]

Yeah.

[B]

Oh, he do. He got it.

[A]

Oh, he got it all. Yeah. I mean we were getting paid as we were delivering so like each aircraft load that lands, you submit a the receiving document to the government and they pay you for that aircraft for whatever it is that you delivered.

[B]

Got it.

[A]

So he was getting paid on an ongoing basis and I actually hadn't made he I hadn't been paid on any of the previous contracts because he kept on rolling my money into the next contract because he said, well, you know, I'm using my money to finance these contracts. It's only fair you use your money to finance the contract. So you just made some money on that contract. We're working on this new contract. Why don't you roll it into the next one? So I was living off my savings this entire time. I was running out of money quick. And, and he knew that. So I was desperate to, like, negotiate something. And eventually we agreed to, to a much smaller amount than $5 million. And we were getting ready to sign the, the agreement. The day we're going to sign the agreement, I get a phone call from the office, from the secretary, and she tells me, you know, I just want you to know that the feds just raided the office. Oh, yeah, they're federal agents all over. They're boxing up all the documents. They told everyone to leave the office and to leave our computers there. And, and so, you know, I realized, you know, we're. We're screwed, right? I go to my, like, I hire a lawyer and, and my lawyer tells me, well, you know, go look in your emails and in your text messages and all that stuff and see what, you know, what kind of incriminating evidence they have against you, right? So I search for like, Chinese ammo, repackaging, etc. You know, all the things that I thought would be the keywords. And there was a lot, right? You know, unfortunately, there is a lot. There was. At first, at first, Ephraim told me, you know, we're. We're only talking on the phone on this. We're not sending any emails. But then, like, everyone's in different time zones and we're like, very short on time and, you know, the aircraft is landing and you need to get that document in time, etc. And then Ephraim sends an email. Then everyone's like, well, if I'm sending an email, you know, and then everyone starts sending an email. And at some point, our investor Ralph sent like an emailed us instructions, like step by step instructions how to, like, sand Chinese markings off crates. Literally, like step by step with pictures and, you know, the picture of the equipment. And he tried it out himself and, and he, you know, he showed the results. So it was very, very incriminating. We knew that there was. We could deny what we were, that what we had done.

[B]

And did you know that they were onto you at any point?

[A]

Well, I mean, after they Raided the office for sure, but not before that. So before that we didn't know because we didn't know that Costa told them.

[B]

Got it.

[A]

Right. I mean, we thought we knew he was mad, but we didn't know if he was actually going to do it.

[B]

Because he ended up dead.

[A]

And he ended up dead. So we're like, you know, we didn't know that he had told the New York Times and the FBI before that. So my. My lawyer tells me, look, you know, they have rock solid evidence against you. You've got no chance in court, you know, and if you do want to fight him, you're gonna need a few hundred K, right, Too. And I was about to go broke because I hadn't been paid, so I couldn't even afford a good defense. And not that I thought I was gonna win even if I could. Right? So. So my lawyer tells me, well, you know, your only option really here is to just cooperate with them and hope they don't fuck you too hard. That's kind of how it goes, right? And so he arranges a meeting with the. With the agents. And he and the agency, the way they work, they say, you know, you're going to tell us everything, and if you omit anything, right, Then we are. Then we're going to go hard on you. We're going to tell the judge to throw the book at you. So you have to be completely forthcoming and honest about everything and don't even forget anything, right? And so I told them everything I knew, of course. And they told me at the end of the. Of the interview, they're like, you know, I'm sure you're wondering what we know. So I just want you to know, you know, after we did the raid, we found on Ephraim's desk a to do list written in his handwriting. And one of the items of the to do list was repackaged Chinese ammo. So they're like, yeah, we knew about that. And so. And they told me, you know, we're not even planning on charging you because you didn't make any money from this. You're not. You've. You're not even with the company anymore. You're. We're going for Ephraim. He's the king pin, so to speak. And then they don't do anything for, like, six months. Wow. Yeah. Like there's nothing. So I figured, well, maybe they're not going to charge anyone. Maybe they're just going to let this go, right? Because Ephraim kept on delivering.

[B]

Oh, wow.

[A]

Yeah. He Kept on delivering the Chinese ammo to the army for six months after the raid. And it turned out, we found out later in, because Ralph ended up going to court, our investor ended up going to court. And so through the discovery process and during the, the trial, we got the internal emails from that the, you know, had sent each other, and the Justice Department had sent an email to the US army informing them that this stuff was Chinese and that they may want to stop taking delivery on it. And the army responded, this ammunition is critical to the mission in Afghanistan. And if you want us to stop taking delivery on it, we're going to need a letter from the Attorney General of the United States instructing us to stop taking delivery.

[B]

Wow.

[A]

And that letter never came right, because apparently they wanted the ammo, right? They needed it, and they didn't really care that it was Chinese, it was good quality, and it was by far the best possible price. And that's what they really cared about. And then six months later, in March of 2008, March 28, I'll always remember the date, the New York Times publishes a front page article about us. Their investigation had taken them like, I think six, not eight months, something like that. And the front page article was not flattering. It had our mug shots, both mine and Ephraim's mug shots on the front page next to a picture of rusty looking ammo that they said was all the stuff we were delivering and that we were endangering our Afghan allies, soldiers by by providing low quality, defective ammunition, which was not true. The, the ammunition they actually had on the COVID of the New York Times was not even the Chinese ammo, it was Bulgarian ammo. That Ephraim had gotten an offer to buy this, this ammo. He had bought this ammo site unseen because it was like 30,000 rounds, which is very small amount compared to the 150 million rounds we were delivering. And he was offered this ammo very, very cheap. And we had, we were buying grenades out of Bulgaria and there was extra room on the plane. And he, it wasn't worthwhile. The ammo is such a small amount, it wasn't worthwhile to fly over to Bulgaria to inspect it. So he decided to take a risk and, and just buy it without even inspecting it. And he figured, you know, if it's, if it's good, we're going to make an enormous profit. If it's bad, it's not so much money anyway. And so he delivered. That receiving officer in Kabul took one look at this ammo and it's like I'm not paying for this crap. And never issued it to the soldiers. But they had no. They have no recycling facilities in Afghanistan. Ammo recycling facilities. So they couldn't take it apart, and they didn't want to pay to ship it back, so they just shoved it to the side of the airport and left it there in the weather to continue corroding and rusting. And a few months later, the New York Times sent an investigator, a journalist, to go investigate. And he was asking around, you know, where's, you know, some ammo that AUI delivered, and someone pointed him at that. So that's how they got the picture that ended up on the COVID of the New York Times. And the. There was a very strong implication that all the stuff we were delivering, which was of similar quality to that, which was completely untrue. True. So this created an enormous political scandal, and there were hearings held on the floor of Congress. If you look up on YouTube, you could see this senator with, like, a big easel with those big papers, you know, with, like, our pictures on the papers. He's like, and these are the guys that the Bush administration trusted to deliver a $300 million contract. And the entire war on terror in Afghanistan is hinging on these guys, you know, so they. They used it as a. As a big political scandal thing. And unsurprisingly, two days later, the US army puts out a statement that they're shocked and appalled. You know, I'm paraphrasing here. And that they had no idea that this was going on, and they're canceling the contract. And then a few days after that, the Justice Department says, announces that they're going to charge us with.

[B]

Jeez.

[A]

Yeah. So they probably wouldn't have done anything it. If it wasn't for the bad publicity. And it made everyone look bad.

[B]

Yeah.

[A]

But now then they had to cover themselves. So we got thrown under the bus. And the way they charged us was they said, you know, you guys delivered. Every time you delivered an aircraft load of this Chinese ammo, you supplied a document called a certificate of conformance, Right. Where you list the type of ammo, the quad, the. The year of manufacture, the quantity, and most importantly, the place of performance. Right. Place of origin. Right. Where it came from. And you guys put on place of origin, Albania. And you knew that the original place of origin was China. And not only did you know, you had this whole operation to hide the fact that it was China. Right. You repackaged the ammo to hide that. It was to get rid of all the Chinese markings. And so each document you submitted to the government is an act of fraud. And there were 71 aircraft loads of this Chinese ammo.

[B]

Wow.

[A]

So that's 71 acts of fraud and you can get up to five years in prison for each one. So that's three hundred and fifty five years in prison you're looking at. Unless you plead guilty. If you plead guilty, then we're going to combine all those 71 acts into one. And so you're looking at maximum five years and it's up to the judge to sentence you. But you know, prosecutors will go to the judge and tell them that you pled guilty and that you're a reformed citizen and you know, you feel really bad about it. So the judge should give you the low end of the guideline. So maybe you'll get one year, maybe you'll just get probation. So what do you want to do? Right. You know, 355 years or maybe just probation.

[B]

Yeah.

[A]

And so of course we all pled guilty except for Ralph. He decides to.

[B]

That's the investor.

[A]

The investor? Yeah. In the movie he's like a, like a Jewish laundromat owner and in real life he's actually a Mormon machine gun factory owner. So a little different. But his name is Ralph, so they got that part.

[B]

Okay.

[A]

Yeah, but why do you fight it? He thought he could prove that he was unaware of the whole scheme even though he sent that email with step by step directions on how a sound off Chinese parking. So I don't know what he was thinking. Honestly, I thought it was a very bad idea for him to fight it. He spent like every penny he had left cuz Ephraim screwed him out of like all the money he invested. Ralph had put in like a million and a half dollars into the contract to fund the contract. And Ephraim not only did he, did he not pay him the profits from the contract like they had agreed, he didn't even pay him back the principal. So Ralph lost a million and a half dollars on this Afghan contract and then he spent I probably another million defending himself in court. So because Ralph's first trial was a hung jury, one juror refused to convict him. So they did the whole trial again. And the second trial he got convicted and he got sentenced to four years. Oh wow. So yeah, not 355 years, but, but four years. You know, there's no picnic. I mean he was also an older guy, you know, he's like in his 70s. So that's rough. Yeah, that, that is rough.

[B]

And you ended up getting seven months of house arrest.

[A]

Yeah, I ended up getting seven months of house arrest. I was. Was terrified, of course.

[B]

Yeah.

[A]

How was that? Not so bad, you know, it wasn't so bad. It was a million times better than prison, I'll tell you that.

[B]

You know, and Ephraim got a few years.

[A]

Yeah, so Ephraim got four years. And the reason he got four years, he probably would have gotten a lot less, but while he was awaiting sentencing. So the way it works is when you sign a plea agreement with the. With the Justice Department, they. They say, you know, okay, you're going to plead guilty, you admit all the things you did. We're going to agree to tell the judge to go easy on you in exchange. However, part of the agreement is you can't commit any further crimes before you get sentenced, because how are we going to tell the judge that you're a reformed citizen if you commit another crime? Right? So they told Ephraim, you have to stay out of the arms business until you get sentenced. Now, the. But from the point where they charged us to the point where we got sentenced, it was three years because they wanted to wait until Ralph's trial was over before they sentenced us in case they wanted to call us as witnesses in this trial. They wanted to have that sentencing over our head to use as leverage against. Against us. So during that three years, Ephraim just couldn't stay out of the arms business. He had one of his lackeys, you know, the guy. One of the guys he. It wasn't the guy he replaced me with because he screwed that guy over and that guy quit. It was the guy he replaced him with. He just kept on screwing people he screws. I've never met anyone who's done business with him that was happy about it. You know, like, one of the things he always said is, if the other guy's happy, there's still money on the table. You know, that's just how he operates. So he. So he had one of his lackeys start a company under his lackey's name, and he was doing business under that company, but he's a control freak. So when it came time to, like, negotiate, he would insist on getting on the phone himself and negotiating himself. So he was trying to do this deal with some gun dealer in, like, Central Florida. Gun dealer realizes who he is. He Googles him, you know, realizes that he's a convicted felon, you know, because he already pled guilty. So he's a convicted felon. Even though he hadn't been sentenced yet. Yet. And probably thought that he's trying to entrap him into something to get his sentence reduced. So the gun dealer he's talking to calls up the atf, right, the Alcohol, Tobacco, Firearms Administration. And he tells them, you know, I've got this convicted gun dealer, you know, trying to do this deal with me. What should I do? And so the ATF tells him, well, you know, why don't you introduce one of our undercover agents as your business partner? So the undercover agent talks to Ephraim. He's like, you know, I'm the kind of guy who, like, needs to look you in the eye, shake your hand before I do a deal. So why don't you come up to. To Orlando so we can meet and we can close this deal. The agent knows that Ephraim is out on bond, and he can't legally leave the southern district of Florida. He can't leave, you know, south Florida. So going to Orlando violates the terms of his bond. He knows this, right? So Ephraim, you know, is not. Is. Is okay with a high level of risk. He hops in his car, drives up to Orlando, meets the agent. The undercover agent pulls out, you know, a handgun. And he's like, hey, check this out. You know, I know you're. You know, you're. You're really into guns. I just got this. The latest HK on the market. Check this out. Ephraim's like, oh, I heard about that thing. Let me see that. Picks it up. He's like, let's go fire off a few rounds. Because what can I say? Once a gun runner, always a gun runner. Am I right? And the agent slaps cuffs on him, and he's like, you're a felon in possession of a firearm, Harm. That's a federal. That's a felony. That can get you up to 10 years.

[B]

Wow.

[A]

You're under arrest. So, of course, they didn't give him another bond because he violated the terms of his first bond. So he had to spend, like, a year in county, which was no. No picnic while he was away, awaiting to get sentenced. So he could have gotten, like, five years for the fraud charge and 10 years for the gun charge. So 15 years total. But he hired the best lawyers in Miami. They negotiated it down to four years. He got out in like, three and a half or so.

[B]

And did he contact you when he got out?

[A]

Well, I sued him once he got out, so, you know, for all the money he owed me, because he got to keep almost all the money.

[B]

Oh, the government didn't take the money.

[A]

No, they didn't.

[B]

Oh, wow.

[A]

And the reason for that is because in fraud cases, when. When you get convicted of fraud, you usually have to do restitution. Right. Which is you have to pay the victims back. Right. And that's based on how much the victims lost. But in this case, the government didn't lose anything. Right. In fact, they saved massive amounts of money by buying it from us because we were way cheaper than, you know, General Dynamics. And so there was no real loss. The only loss they could claim was the cost of taking the contract away from us and putting it out for open bid again, which they estimated to be about 350k. So they fined him $350,000, and he got to keep cheap. Like the millions. About 15 million that he was making from it. Yeah.

[B]

Did you end up suing and winning or.

[A]

So I sued him, and eventually I settled. Got a much smaller amount than what he owed me, but mainly because I just wanted to matter my life, and I wanted to, you know, move on.

[B]

With my life onto better things. And now you got War Dogs Academy. So you're teaching others how to get government contracts. During the pandemic, there was a lot of government contracts.

[A]

That's right. Yeah. He. There was an enormous amount of government contracts for. For medical supplies and all that.

[B]

Yeah, I got a couple of those.

[A]

Oh, yeah?

[B]

Yeah.

[A]

You do government contracting?

[B]

I did. During the pand.

[A]

Oh, awesome. Awesome. So then you know what I'm talking about.

[B]

Yep.

[A]

Yeah, Very cool. Yeah, a lot of business. He actually also did government contracting through someone else's name. The New York Times was investigating. He was not allowed to do it because he was banned from doing government contracting. I was banned, too, for about 15 years, but.

[B]

Oh, wow.

[A]

I just got off the banned list, so. Yeah, so ever since the movie came out, I. You know, a lot of people have contacted me asking them to teach them how to do government contracting. And. And, you know, I hadn't been doing it for years, and I have my other businesses as well, and so I. And we can talk about the other businesses in afterwards. But about a year ago, I had a guy named Logan. He. He contacted me saying, you know, I just want to let you know that about six years ago, my partner James and I, we were 21 years old, and we were dead broke working on a farm, you know, just to make money. And the farm had a. Had a movie night, and they played War Dogs. And we thought, these guys are our age. Why can't. If they can do it, why can't we do it? So they threw themselves into it and they taught themselves the business and six years later they have a multi million dollar government contracting business and they're doing very, very well.

[B]

Incredible.

[A]

Yeah. And so I, I said that's amazing. You guys taught yourself that. I mean that's very impressive. I have a lot of people who are constantly contacting me wanting to learn how to do this. And you guys are as up to date as it could be on the industry because you have currently active government contracts and you're bidding on new ones. So why don't we start something where we could teach people how to do government contracting? That's how War Dogs Academy started. We, we just launched it a month ago and it's going really, really well.

[B]

Yeah, we'll link it below. I know you got a flight to catch and we gotta wrap up, but Insta Floss and Singular Sound are your other companies.

[A]

Yes. So I, while I was, while I was under house arrest, I had the idea for my first invention which is called the Beat Budd Buddy that plays a Beat Buddy. It's because I'm a musician, I play guitar and I couldn't play with any drummers at the time because no one's going to bring their drum set over my apartment and massive pain in the butt to move a drum set. So I bought a drum machine, but that you have to operate that with your hands, you know, so like it interrupts the flow of the music when you're trying to play guitar. So I had the idea to put it in like a pedal format on the floor so you could control it with your foot. And so that's how I launched my company, Singular Sound and we make a few other musician related products.

[B]

Smart.

[A]

And so Beat Buddy's done very, very well. We also make the world's most advanced looping pedal. So for the musicians out there, they can check it out. But always wanted to make something not for musicians because musicians are such a small component of the population. So I came up with, with my brother with, for a product called Instafloss, which is a device that flosses your teeth for you in 10 seconds. Yeah, yeah. Oh yeah. So it uses 12 water jets in like a. You could look it up on instafloss.com and so you know a water pick.

[B]

Yeah.

[A]

So that's a single water jet that you have to trace your gum line, top, bottom and then on the inside, which is very difficult, usually sprays all over the place. If you don't know how to do it. And so what we did is we created this kind of like H shaped manifold which you bite into. And it has 12 water jets, all four quadrants, top, bottom, outside and inside. And you just slide it across your teeth and it gives you a full floss.

[B]

Wow.

[A]

Seconds.

[B]

I'm definitely going to try that because the water picks convenient. But it takes like two minutes exactly.

[A]

So this takes 10 seconds.

[B]

That's cool, man. Well, that's awesome. We'll link everything below. Thanks so much for coming on, dude.

[A]

That was my pleasure.

[B]

Yeah, we'll have to do a part two. Thanks for watching, guys. See you next time.