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

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 DeVaroli.

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

all right guys we are in la got david packows here today we're talking war dogs we're talking arm dealing and we're talking uh what you're up to now yeah thank you quite the story man thank you thank you for having me 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 yeah so uh for people who don't know me, the movie War Dogs was based on some events in my life.

In the movie, movie, I'm played by Miles Teller, and Jonah Hill plays my former partner, Ephraim DiVaroli.

So

the way I got into it,

this was back in like 2006, 2006, yeah.

Actually, or late 2005,

I knew Ephraim from like 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 U.S.

government.

I 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

the way he got into it is

when he 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'd send 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

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 claim the other screwed the other, you know, and they're both scumbags.

So I believe them 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.

He 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 uh you know finding suppliers overseas arranging logistics figuring out the financing etc etc 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, et cetera.

And so I asked him, well, how much money have you made?

And he says to me, he's like, I'm going to 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.

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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.

Wow.

Yeah.

How did you even find out where to get that?

Google, you know, for real.

Yeah, you can find everything on Google and also trade directories and things like that, as well as asking people for references.

If 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 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.

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 at 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 and because he knew no one else wanted to deal with this pain in the ass contract.

So I started working on that.

And that's kind of, 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.

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

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 by far the lowest price, you're going to raise your price.

So it's illegal for the government to tell bidders what your competition is bidding, or even if you have any competition, right?

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.

That makes sense.

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 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

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 ak-47 yeah you know they're not compatible the the ammunition you know so uh the united states at the time was trying to uh 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 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 decided they wanted to arm the Afghans to the teeth so that the

country of Afghanistan wouldn't fall back into the hands of the Taliban.

Right.

Yeah.

Turned out not to really help them that much, you know, because now the Taliban has all the U.S.

humvees and our bullets and all that.

So

anyway,

so they put out this solicitation for, like, it was a massive, massive

300 million, right?

It ended up being about 300 million.

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 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 AK-47, 762x39, 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 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 States put them on a banned list.

So we couldn't, it's illegal for U.S.

companies to buy or sell military equipment with the Chinese since 1989.

Wow.

Yeah.

Now the thing is, is that if you had bought military equipment from them in 1988 or before when it was legal

and you exported 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.

Oh, wow.

So it didn't really violate the terms of the embargo, but our contract with the U.S.

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 uh to repackage the the ammo and to uh put it into these like plastic bags and cardboard boxes instead of the original wooden crates that had all the chinese markings on it

um

anyway so we start delivering this that the government is thrilled right the the army is thrilled they uh the ammo is high quality they were very desperate for it at the time because uh 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.

That's your partner?

That's my partner.

The guy who's played by Jonah Hill.

Yeah.

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

connection.

And so Ephraim decides that he wants to,

he asks the guy who was doing the repackaging for us,

the guy who was doing the repackaging for us, his name was Costa.

And he owned a cardboard box factory.

That's how we found them.

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 says, yeah, you know, I have like...

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 ammo right because we were paying henry and henry was paying the ministry of defense got it so we didn't know we ephraim wanted to know what his profit margin was right so costa comes back a few days later and he's like yeah they they say he said that uh they're getting paid two cents a round

and we were paying henry four cents around wow so henry's doubling his money and ephraim was pissed right he's like this motherfucker 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 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 for me?

You're going to need it anyway, 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.

Fuck that guy.

I'm like, why don't you just pay him anyway?

Because he knows about everything.

And Ephraim's like, nah, he's not going to do anything.

Fuck that guy.

And so that guy, Costa, he got really pissed.

And he called up the New York Times and 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 some of 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.

Holy crap.

Yeah.

in a very suspicious car accident.

He's like in an empty field on a dirt road, and somehow his car had run him over.

What?

Yeah.

Yeah.

Like he was found like lying

face down in the dirt with his car like 30 feet 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.

The Albanian mob is known 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.

Wow.

So anyway,

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.

And the army is thrilled.

They're getting the ammo.

Ammo is high quality, et cetera.

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.

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'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.

So he's like, yeah, but you know,

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 big part of why AEY is where AEY was the company, you know, why AEY 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 AEY.

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 I'm supposed to get 25% of the Afghan contracts.

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.

And I said, go fuck yourself.

I'll see you in court.

And I was like this close to punching him in the face.

Dang.

Yeah.

That's your childhood best friend, too.

Yeah.

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.

You know, he wasn't.

The money changed him, yeah, totally.

Wow, 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 gonna do that to me, you know, and like you were too loyal.

I mean, and and like, I knew he was a scumbag, and I always taught my told myself, Well, I'm not gonna be a scumbag, and I'm gonna make money, I'm gonna get out, and then I'm not gonna work with this guy anymore, you know.

But

yeah, it was just deluding myself, so so yeah, so I left, and

I,

you know, start negotiating.

I'm getting ready to sue him, negotiating with him.

We agreed to a very small amount of compared.

He owed me like $5 million.

And did he get the money from that contract?

Yeah.

Oh, he did.

He got it all.

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

the receiving document to the government, and they pay you for that aircraft for whatever it is that you deliver.

So he was getting paid on an ongoing basis.

And I actually hadn't made, I hadn't been paid on any of the previous contracts because he kept on rolling my money into the next contract.

Wow.

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 he knew that.

So I was desperate to like

negotiate something.

And eventually we agreed to

a much smaller amount than five million dollars.

And we're getting ready to sign 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 Fed's 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

so,

you know, I realized, you you know,

we're screwed.

I go to my, like, I hire a lawyer

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.

So I search for like Chinese ammo, repackaging, et cetera, you know, all the things that I thought would be the keywords.

And there was a lot, right?

You know, unfortunately, there was 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, et cetera.

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 a and emailed us instructions, like step-by-step instructions how to like sand Chinese markings off of our crates, literally like step-by-step step with pictures and you know the picture of the equipment.

And he tried it out himself and he, you know, and he showed the results.

So it was very, very incriminating.

We knew that there was no way we could deny what we were, that what we had done.

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

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.

Got it.

Right.

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

So he ended up dead.

And he ended up dead.

So 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 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 them, you're going to need a few hundred K, right?

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 going to win, even if I could.

So

my lawyer tells me, 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 agents.

And the agents, 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

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, you know, we're going for Ephraim.

He's the kingpin, 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.

Oh, wow.

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 trial, we got the internal emails that the government had sent each other.

And the Justice Department has sent an email to the U.S.

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.

Wow.

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 28th, 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, 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

providing low-quality, defective ammunition, which was not true.

The ammunition they actually had on the cover of the New York Times was not even the Chinese ammo.

It was Bulgarian ammo.

Ephraim had gotten an offer to buy this

ammo.

He had bought this ammo sight unseen because it was like 30,000 rounds, which is a very small amount compared to the 150 million rounds we were delivering.

And he was offered this ammo very, very cheap.

And we were buying grenades out of Bulgaria.

And there was extra room on the plane.

And

it wasn't worthwhile.

The ammo was such a small amount.

It wasn't worthwhile to fly over to Bulgaria to inspect it.

So he decided to take a risk and just buy it without even inspecting it.

And he figured, you know, 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 and 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 some ammo that AEY delivered?

And someone pointed him at that.

So that's how they got the picture that ended up on the cover of the New York Times.

And there was a very strong implication that all the stuff we were delivering, which was of similar quality to that, which was completely untrue.

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, 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 used it as

a big political scandal

thing.

And unsurprisingly, two days later, the U.S.

Army puts out a statement that they're shocked and appalled.

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 announces that they're going to charge us with false.

Yeah.

So they probably wouldn't have done anything if it wasn't for the bad publicity and it made everyone look bad.

But now then they had to cover themselves.

So 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 year of manufacture, the quantity, and most importantly, the place of performance, right?

The 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.

Wow.

So that's 71 acts of fraud.

And you can get up to five years in prison for each one.

So that's 355 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.

And 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.

And so, of course, we all pled guilty, except for Ralph.

He decides to.

That's the investor?

The investor, yeah.

In the movie, he's like a like a Jewish laundromat owner.

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.

Okay.

Yeah.

But why did he 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 to sound off Chinese markings.

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 because 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 think, 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

four years.

You know, it was no picnic.

I mean, he was also an older guy.

You know, he's like in his 70s.

So, that's rough.

Yeah, that is rough.

And you ended up getting seven months of house arrest?

Yeah, I ended up getting seven months of house arrests.

I was terrified, of course.

I was not.

Not so bad.

You know, it wasn't so bad.

It was a million times better than prison, I'll tell you that.

And Ephraim got a a few years.

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 Justice Department,

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,

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 his trial.

They wanted to have that sentencing over our head to use as leverage 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, um, 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.

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 and 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 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 South Florida.

So going to Orlando violates the terms of his bond.

He knows this, right?

So Ephraim

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

a handgun and he's like, hey, check this out.

I know

you're really into guns.

I just got the latest HK on the market.

Check this out.

And 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.

That's a federal felon.

That's a felony that can get you up to 10 years.

Wow.

You're under arrest.

So, of course, they didn't give him another bond because he violated the terms of his first bonds.

So he had to spend like a year in county, which was no picnic while he was 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.

And did he contact you when he got out?

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.

Oh, the government didn't take the money?

No, they didn't.

And the reason for that is because in fraud cases,

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 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 $350,000.

So they fined him $350,000 and he got to keep like the millions, about $15 million that he's making from it.

Damn.

Did you end up suing and winning?

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

On to 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.

That's right.

Yeah, there was an enormous amount of government contracts for medical supplies and all that.

Yeah, I got a couple of those.

Oh, yeah?

Yeah.

You do government contracting?

I did during the pandemic.

Oh, awesome.

Awesome.

So then you know what I'm talking about.

Yep.

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.

Oh, yeah.

He was not allowed to do it because he was banned from doing government contracting.

I was banned too for about 15 years, but 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, uh, and, you 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 afterwards, but about a year ago, I had a guy named Logan.

He

contacted me saying, you know, I just wanted 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 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.

Incredible.

Yeah.

And so 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 so that's how war dogs academy started

we we just launched it a month ago and it's going really really well yeah we'll link it below i know you got a flight to catch and we got to wrap up uh insta floss and singular sound are your other companies yes so i while i was while i was uh under house arrest i had the idea for my first invention which uh is called the beat buddy like your buddy that plays a beat beat buddy it's because i'm a musician i play guitar and uh 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 very few other

musician-related products.

Smart.

And so Beat Buddy is 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.

And but always wanted to make something not for musicians because musicians are such a small component of the population.

So I came up with my brother

for a product called InstaFloss, which is a device that flosses your teeth for you in 10 seconds.

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 yeah 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 uh 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 in two seconds.

I'm definitely going to try that because the water pick's convenient, but it takes like two minutes.

Exactly.

So this takes 10 seconds.

That's cool, man.

Well, that's awesome.

We'll link everything below.

Thanks so much for coming on, dude.

That was my pleasure.

Yeah, we'll have to do a part two.

Thanks for watching, guys.

See you next time.