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The Arms Dealer Next Door

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Michele-Gillen-600x450 Michele Gillen
Michele Gillen is chief investigative reporter at WFOR-TV, Mi...
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South Florida Crime

MIAMI (CBSMiami) – More than 5 years ago, David Packouz and his former arms trading business partner became national news. The story of how the Miami Beach duo managed to bid and win a $300 million government arms contract led to Congressional hearings and convictions.

Packouz has remained mostly silent about this chapter of his life. Now, for the first time on television, Packouz reveals the inside story.

“There were times when I thought I would not get out alive,” Packouz told CBS4 News Chief Investigative Reporter Michele Gillen.

At 22, Packouz and 18-year-old Efraim Diveroli were playing with the big boys in the global arms trade. In the shadow of Miami Beach, they were two kids wheeling and dealing in arms.

“Was it kind of a boiler room operation?” Gillen asked.

“It was as boiler room as it gets,” Packouz said.

From Iraq to Afghanistan, lives depended on their supplies.

“What was the deal you got that you said, ‘I made it.’ “

“The Afghan deal, of course, it was a $300 million dollar deal. That’s how you know you make it,” Packouz said.

A $300-million-dollar deal that erupted to what’s considered a cataclysmic failure of the U.S. Defense Department  and its vetting and procurement procedures.

U.S. foreign relations and the arming of U.S. supported freedom fighters were on the line.

“We were supplying the war effort in Afghanistan, we were supplying the people who are on the front lines fighting the Taliban,” Packouz said.

The son of a Miami Beach rabbi who grew up dreaming of being an inventor says he knew nothing about weapons when the apparent success of arms trader Efraim Diveroli convinced him to come onboard.

Diveroli, who was only 18 at the time, was president of his company, AEY Inc.

But his success story was so incredible, it was enough to convince Packouz to join him.

“What brought me in is that he was only 18 years old and he had already made $2 million. And I saw that this guy knew how to make money,” Packouz said.

“So this kid at 18 tells you he’s worth a couple of million dollars. Why did you believe him?”

“I saw him wipe the floor in negotiations with seasoned executives, middle-aged men who’d been doing the business for 25 years,” Packouz said.

They bid cheap and the government, he says, was interested in the lowest bidder.

“Sure we were young guys, a lot younger than they were used to dealing with. We maybe were smoking a joint while we were on the phone with them, but they couldn’t tell the difference, and we did our job and we did it well.”

Not according to U.S. investigators who say so many red flags were raised it’s incredible that the government continued to award AEY contracts. Ultimately, they were awarded the big bonanza – a $300 million contract. Their world fell apart when one shipment of bullets en route to Afghanistan was discovered to have been made in China.

Chinese-made ammunition is banned in the U.S. Efforts were made to disguise the Chinese markings.

“We repackaged the ammunition partially in order to disguise the fact that it was Chinese and I think that was our big mistake,” Packouz said.

Months after Packouz resigned from AEY, it was raided by the FBI and in time he was arrested.

“Did you think you were going to go to prison?” Gillen asked.

“I did, yeah,” Packouz said.

“And what did that feel like?” Gillen asked.

“It felt like the end of the world. I thought I was going to spend a few years inside a little concrete cage. I felt ashamed that I embarrassed my family and suddenly, we became villains that were supplying shoddy ammunition to our Afghan allies in Afghanistan and that’s what bothers me because I definitely think it’s an extremely despicable thing to supply soldiers with substandard ammunition. You’re putting their lives at risk and we were not doing that and that’s how we were portrayed,” Packouz said. “I am not a villain.”

Packouz accepted a plea deal and while he is a convicted felon, he got no jail time. Not the case for his former partner. Diveroli was convicted for conspiracy to defraud the U.S. Government and along with a probation violation was sentenced to six years. He has been serving time at a low-security federal prison in Miami. Diveroli is expected to be released in November of 2015.

Meanwhile, Packouz has invested in a new venture, one that strikes a different chord.

“I’m feeling good. I’m finally in a business that I can be very proud of. I invented a guitar pedal drum machine. I’ve been issued a patent for it. I’m finally an official inventor,” Packouz said.

Packouz said his childhood dreams of becoming an inventor are coming true and his effort for crowd funding is rocking.

“What’s your message to your family today?” Gillen asked.

“You can always have a second chance  or a third or a fourth,” Packouz said.

When you look at this picture is that a different life for you?

“It definitely is. One I’m glad that it’s over,” he said.

CBS4 News Producer Jasmine Kripalani contributed to this report.

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