All language subtitles for American Greed s11e02 The Real War Dogs

In this episode of American Greed,
Ephraim DeVaroli, just 18 years old,

is doing his part for the war on terror.

No, not on the battlefield.

In his apartment in Miami.

He's an online government contractor
supplying weapons and ammo to the U .S.

Army.

And America's wars are making him rich.

He had made 1 .8 million dollars and he
showed me his bank statement.

And that blew me away.

What he delivers to the front lines is
the cheapest equipment he can find,

including some that is damaged and
unacceptable.

This guy is getting rich off of selling
bad ammunition while people the same age

as him are taking the sacrifices.

Despicable.

And that's not all. He's also breaking
the law, defrauding the U .S.

But he says he is a warrior.

A tough international gun runner.

A guy who makes his own rule.

An aspiring merchant of death.

It was a Lord of War type feeling.

You know, I am the master of things that
go boom.

In the summer of 2016, Warner Brothers
releases a movie called War Dog.

What do you know about war?

War didn't cut me. It is loosely based
on the true story of Ephraim DeFaroli

David Packhouse, two 20 -something
potheads from Miami Beach who beat out

of America's biggest defense contractors
to win one of the largest munitions

contracts for the war in Afghanistan.

worth almost $300 million.

It takes hard work, good timing, a few
lies, and a big -time fraud.

War Dogs is largely fiction, billed as a
comedy.

You drove these.

Through the triangle of death.

But the facts behind the joke tell a not
-so -funny tale about a time when war

meets greed.

These are the real war dogs.

Over any weekend in Miami Beach in the
late 1990s, a group of young private

school kids can be found hanging out on
the beach, playing music and smoking

weed.

In the group are two friends, Ephraim
DiBeroli and David Packer.

Both of our families go to the same
synagogue in Miami Beach.

And so he was 12 years old. I was 16
when we first met. He was this really

loud, funny kid.

The Jewish community where they live is
largely wealthy.

But these boys are not the rich kids.

In the small house where DiVaroli grows
up, money is a constant issue.

And that's perhaps why, as a seven -year
-old boy,

Devoroli makes this his birthday wish.

And that wish only grows stronger when
he enters middle school.

His classmate's father took his entire
middle school class on his private jet

Israel for his son's bar mitzvah.

And ever since then, he said his goal in
life was to have his own private jet.

And he said, to get there, you've got to
be a billionaire.

But for now, Diveroli is the fun guy,
always pushing the limits, looking for

attention. When everyone would drink one
beer, he had to drink three, just to,

you know, show that he was, you know,
like a bigger man.

As a ninth grader, Diveroli is caught
smoking marijuana and is expelled from

school.

His parents ship him off to L .A., where
his uncle owns a gun shop.

The move offers DiBeroli an inside track
to what will become a focus in life.

Guns.

In his autobiography, Once a Gun Runner,
he writes about the first time he held

a gun.

It felt powerful.

I felt powerful.

Dangerous.

In L .A., he moves quickly from the
warehouse to the sales office.

At age 16, Deverelli is now a teenage
gun dealer.

He is a very good communicator. He's
very smart, very street smart, very

and he learns the business extremely
well.

He says he is living and breathing guns
and ammo while working as a sales rep

for gun manufacturers.

One customer in Utah is Ralph Merrill.

He handled my orders well on time and
handled any problems or questions that I

had.

So I was building trust and faith.

After a few years in L .A., DiVaroli
returns to Miami to start making his

millions.

Working out of a studio apartment, he
takes over a shell company his father's

called AEY.

and launches his own business, selling
to the U .S. government.

When he came back, he was still like a
funny, goofy guy, but he was much more

driven. And now he was only speaking
about money and about business, and that

was pretty much all he talked about.

And for a guy looking to get rich quick,
DiBiroli is in the right business at

the right time.

It's 2004, and America is fighting two
wars.

Enemy resistance in both Iraq and
Afghanistan is far greater than

The military is unprepared.

Oh, the military had no idea what was
coming. They were caught utterly by

surprise.

Law professor Charles Teefer heads the
Federal Commission on Wartime

in Iraq and Afghanistan.

It had to get everything, logistics,
ammunition, support for the

Iraqi forces. It had to start out from
scratch doing that.

And Ephraim DiFeroli looks at the
shortages on the battlefield and sees

signs.

His gateway into the wartime cash
machine is a website, Federal Business

Opportunities, known as fedbizops .gov.

There, the federal government posts
everything it wants to buy from private

contractors, from office supplies to
military aircraft.

They release probably around a few
hundred requests for bid every day.

So it's a massive amount of material to
go through.

And DiVaroli dives right in.

Combing the site for a job he can
handle, he lands his first defense

for one million rounds of ammo for Fort
Bragg in North Carolina.

And then in February 2005, the Iraqi
National Army needs 10 ,000 helmets.

DiVaroli gets the contract, but he needs
a backer.

He, for some reason, thought of me,
called me up and said, Ralph, I need

investment capital.

And he paid me on time. He paid me what
he said he would pay me.

With Merrill's backing, DiVaroli is on a
roll, doing hundreds of thousands of

dollars in government business, selling
ammunition, rifles, machine guns.

He says he hits the million -dollar mark
in contracts in his first year.

Not bad for a stoner teenager working
entirely alone.

Ephraim had a work ethic like few people
I've ever seen. That guy was willing to

stay up all night, every night, to do
the deal.

But he does take time off, hitting
karaoke bars with his friends, and the

showman reappears.

He would just whip his shirt off and
make a big scene, and everyone would be

clapping and laughing, and he'd be
singing completely off -key, but that

part of the whole show.

He was completely fearless. He loved
attention, so he wasn't afraid to get

The irony is that Packhouse is the one
who hopes to make it big in the music

business, and he is far from his goal.

I was supporting myself by working part
-time as a licensed massage therapist. I

was wholesaling, importing and
wholesaling linens from Pakistan and

it wasn't making me a massive amount of
money.

But Devaroli says he is raking in the
cash.

And he told me he had made, he was 18
years old at the time, he had made $1 .8

million, and he showed me his bank
statement.

And that blew me away.

For obvious reasons, when Diveroli asks
Packhouse if he wants to join him in his

contracting business, Packhouse figures
he has nothing to lose.

And so in November 2005, two friends sit
side by side, scouring the Internet for

a big break.

Their goals could not possibly be more
different.

One wants to become a musician.

The other tells friends...

He dreams of being the character in one
of his favorite movies, The Lord of War,

an international arms dealer who amasses
a fortune selling and smuggling guns to

any side of any war.

I think Ephraim felt like he could do it
all. I think that he wasn't going to

let anything stop him, including laws,
rules, things like

that. He was going to be the best at
what he did, and what he wanted to be

gunrunner. My sense of effort was,
through force of personality and effort,

is going to happen.

Up next, Devaroli makes it into an
exclusive club.

They are illegal arm trackers. They fuel
a conflict.

They've done some really nasty things.

In Paris, every other year, the big guns
come to town, literally.

This is Euro Satori, the world's largest
international defense industry trade

show.

In June 2006, as many as 50 ,000 people
show up. They are government officials,

major defense industry contractors,
military personnel.

and two young guys from Miami Beach.

If there is any measure of how out of
place Ephraim DiViroli and David

look in the high -powered world of
international arms dealing, this is it.

Posing with big guns, they could be two
kids pretending to be gangsters.

And true to form, DiViroli puts on a
great act.

DiViroli was all about the swagger.

He would walk in there.

take out the contract and slam them on
the table and say, I'm looking to buy

this. You got it or not?

Returning to Miami, these two
unconventional arms dealers are obsessed

search for government listings where
they can score big.

We would wake up around 11 a .m., the
crack of dawn, and we

would work until around 5 a .m.

Then when we'd get too tired, we'd,
like, pass out on the couch, then sleep

six hours and wake up and do it all over
again.

For every 20 solicitations they bid on,
Pacow says they might win one.

It was kind of like playing the slot
machines.

You know, most of the time you lose, but
when you win, you could win big.

At this point, DiBiroli has gotten
multiple multi -million dollar contracts

the government.

But he is flying by the seat of his
pants.

Writing that he is often stoned, drunk,
and coked up, he works to squeeze every

dime he can out of his contracts.

And he is always ready with a lie.

When the army threatens to cancel the
contract when he is late, his act is

ready. He started crying that his kids
were sick, and he had all these medical

bills, and he was like, his voice was
literally shaking, and he was crying,

saying that this would ruin his small
business, and it was amazing.

But the Army is getting wise to his
tricks.

At one point, when he fails to deliver
on a contract for 10 ,000 Beretta

for Iraq, he blames a hurricane in
Florida that never happened.

In Iraq, the response of the contracting
people was, what do you think, we don't

have the Internet here? We can't look at
the weather in Florida?

You're making it up.

Inspection reports on Deverelli's goods
have a recurring theme, unacceptable.

Helmets he sends to the war front are
reported to be damaged goods.

He ships second -generation reloaded
ammunition to Iraq that has serious

corrosion and defects.

is not acceptable by military standards.

One contracting officer writes, quote, I
just don't trust the guy.

Another rated DiBiroli's performance as
extremely poor.

And another agreed AEY is the worst
company he dealt with in Iraq.

Out of more than 100 contracts, he has
seven that are terminated.

And that is serious.

Three times.

They were formally done what's called a
termination for default, which is the

equivalent of a court martial.

But in DiVaroli's mind, he is a warrior,
pushing the limits of what is legal and

ethical.

And what he says he wants to do is to
join the ranks of the gunrunners he

admires most, the infamous international
arms brokers.

The major concern...

with international arms brokers, is that
they didn't really care about how their

weapons would be used, if they were
going to be used to kill civilians, to

commit murder.

It was a business that they were happy
to do and happy to make lots of money.

DiVaroli's first encounter with the
reputedly shady broker comes in February

2005.

He is looking for Soviet -style weapons
and ammunition.

and is introduced to Heinrich Thomae
from Switzerland.

In the next year, Thomae will fall under
suspicion as an illegal gun dealer. He

is being investigated by the CIA and
listed on the State Department's Defense

Trade Controls Watch List.

People are on that list.

who U .S. intelligence has identified
they are illegal arms trackers, they've

fueled conflict, they've done some
really nasty things.

But when Tomei finds the Soviet weapons
DiVaroli needs to win his contract,

DiVaroli decides he is a hero.

He writes, Tomei is an amazing character
who had done it all, a real -life lord

of war.

I wanted to be just like him.

And little does DiBeroli know that as he
is wheeling and dealing on the edge of

the rules, he is also drawing attention
to himself.

And in 2006, DiBeroli makes it onto the
State Department watch list himself.

And now, with suspicion surrounding him,
the wannabe Lord of War spots an

offering that could just be the jackpot
he is looking for.

Up next, DiBeroli and Parkhouse may not
be as smart as they think they are.

They miscalculated, and it was going to
lead them straight to bankruptcy.

In the summer of 2006, in Afghanistan,
the Taliban is intensifying its

resurgence.

It is one of the bloodiest periods of
the war.

Casualties in the U .S.-led coalition
are high.

I got to know troops personally in my
trips to Afghanistan and Iraq.

And these were soldiers who tugged at
your heartstring by the risks they were

taking and what they were doing.

And while American soldiers are dying in
Afghanistan, in Miami, Ephraim DiVaroli

is working overtime to sell the cheapest
equipment he can find to the U .S.

military.

so he can amp up his profits.

This guy is getting rich off of selling
bad ammunition while people

the same age as him are taking that kind
of sacrifices.

It's despicable.

And Diveroli is getting rich.

That goofy kid has upgraded to a sports
car.

An expensive watch, designer suits, a
luxury condo.

And in keeping with his Lord of War
image, has amassed an impressive gun

collection of his own.

And now he sees before him a potential
gold mine.

The army is looking to buy dozens of
types of Soviet -style munitions for the

Afghan National Army and police.

It was a very large contract, a very
massive undertaking that involved

the munitions and the supplies across
borders of other countries and procuring

them from overseas as well.

De Baroli decides to go for it, and his
first call is to Ralph Merrill, who

agrees to back the contract for up to $2
million.

The deal was that I, as the only venture
capitalist, that I would split the net

profit with him 50%.

Now, where to find the best price on all
that Soviet -style ammo?

There are huge stockpiles of just what
they need across the former Soviet Union

in places like the Czech Republic,
Bulgaria, Romania.

PAKOS reaches out to the far corners of
the world.

Someone speaking Russian would answer
the phone and I would just say, English,

English, English.

And usually they would say, da, da, da,
and hang up the phone, and I'd never

hear back from them.

And for his part, Diveroli turns again
to the Swiss arms broker, Heinrich

Thomae, who says, no problem, the answer
is in Albania.

And he offers to be the middleman
between the Albanian government and

He promises to take care of everything.

So when Tomei came up with this Albanian
connection, which was basically all the

ammunition you need at the price that
you want, they felt like their day had

been completely saved.

Now all they need to do is convince the
army they can handle the job.

And that's where the lies begin.

They report that they have been in
business for 20 years, but Diveroli

is only 20 years old.

It also said there were two former Army
officers who worked at AEY. Also not

true. They claimed to have international
offices, and basically what AEY was

doing with their proposal and their past
performance was they were using the

credentials of some of their suppliers
as their own credentials.

And then, in the section on past
performance, they report that they

million rounds of AK -47 ammo to Ralph
Merrill's company.

Vector Arms.

That never happened.

So the fraud really began with the
solicitation.

But for them, this contract is worth the
lies.

The proposal they submit is valued at
$298 million.

Pacow says they estimate AEY could make
$60 million off this deal.

I thought that there's no way we were
going to win a $300 million contract.

It was around...

20 times bigger than anything he'd ever
won.

At the time of their submission, Ephraim
DiBeroli is a high school dropout, not

yet old enough to legally buy a drink.

He has deported on government contracts,
and he is on the State Department's

watch list.

But still, the good news comes in
January 2007.

Ephraim calls me up, and he's like, I
have good news and bad news.

I'm like, what's the bad news?

And he said, our first order is only 600
grand.

And I'm like, wait, we won the contract?

And he's like, yeah.

The 34 -page contract is
straightforward.

The ammo just needs to be serviceable
without qualification.

A fairly low bar.

But there is one clause that stands out.

Any supplies or services that are
delivered under this contract may not be

acquired directly or indirectly from a
communist Chinese military company.

The clause has its root in a prohibition
that goes back to 1989 in Tiananmen

Square in China.

It is estimated that hundreds of Chinese
protesters are killed by their own

government. In the early morning hours
of Sunday, armored personnel carriers

began to advance on the square, crashing
through the barricades that the

students had put up to protect
themselves.

I think we all saw what the Chinese
military industrial complex can do. They

suppress free speech and suppress the
right of the people of China. And the

government made a determination, the U
.S. government, not to support that in

any way.

For Diperoli and Packhouse, there is no
problem. The ammunition they are selling

is in Albania, not China.

But they have placed all their trust in
a Swiss arms broker who has not told

them what everyone else knows.

What they didn't know was in the 1970s,
Albania broke from the Soviet Union.

And China saw an opportunity there.

And they started to court Albania to be
their outpost in Eastern Europe.

And so the entire country, unbeknownst
to AEY, AFROM, and PACAU, was just

oozing Chinese ammunition.

And they had no idea.

Up next, when the money comes in, so
does the greed.

I mean, I always knew that he was a
tough negotiator, but I never thought

he would steal everything from me.

How quickly circumstances can change.

In January, Efrem Devoroli thought he
was on his way to making tens of

of dollars off one defense contract.

Three months later, reality is setting
in.

He and his partner, David Pakhauser,
told they underbid the competition on

Afghan contract by at least 50 million.
And now they understand one place where

they went wrong.

They miscalculated, and it was going to
lead them straight to bankruptcy.

The problem is they underestimated the
cost of shipping thousands of boxes of

bullets in heavy wooden crates by air
from Albania to Afghanistan.

Packhouse comes up with an answer.

I had the idea to repackage it from
these heavy wooden crates into lighter

cardboard boxes, and I did the
calculations and figured out that it

actually be workable if we did this.

Repackage more than 100 million rounds
of ammunition?

It's a desperate move by young people
determined to preserve $60 million in

expected profits.

To hire a local team to pull off the
job, they send a high school friend to

Albania. When he sees the boxes of ammo,
he calls Packhouse.

He said, you do know it's Chinese,
right?

And I said, what are you talking about?

It's Albanian.

And he's like, no, there's Chinese
markings all over the boxes.

And I was like, oh, well, that could be
a problem.

And that is an understatement.

The contract specifically prohibits the
sale of Chinese weaponry.

Quickly, they write the State Department
asking if it's legal to broker Chinese

ammunition that has been in Albania for
20 years.

The State Department wrote back in no
uncertain terms, no, you cannot.

The embargo prohibits that.

At this point, de Baroli has a few
options.

They did have a large number of
ammunition they could have sourced from

Czech Republic.

However, the Czech ammunition required a
much larger down payment up front.

They could have stopped and said, hey,
we got stuff we were not bargaining for.

We're going to have to go to another
supplier.

They did not choose to do that.

What they choose to do is to conceal the
Chinese origin of the ammo, to lie to

the U .S. government.

That's where it became a crime.

They made a choice right there to
conceal a material fact in the U .S.

government, and that's fraud.

As the massive repackaging effort
begins, they discover the job is more

complicated than they expected.

Ralph Merrill sends an email that shows
how lettering can be scraped off the

wooden boxes.

But when the crates are opened, the
friend in Albania discovers another

On the tins, Chinese characters.

This is a problem.

He asked for one of the tins to be
opened.

They open it up.

There's a cardboard placard in there
with Chinese characters.

So everything about the packaging
says...

And that meant that we had to open the
tins, remove the ammunition from the

tins, and package them in plastic bags
and into cardboard boxes so that there

was no Chinese documentation with it.

They are dealing with more than 100
million rounds of ammunition.

They have thousands of crates that need
to be opened, tins to unseal, and

plastic bags to fill.

And as always, one lie leads to another.

The Army will question why it is getting
the ammo in plastic bags.

And so they send an email claiming that
they repackaged the ammo to perform a

complete visual inspection.

It was all a lie, but it seemed
plausible at the time.

And they tell themselves that what they
are doing is violating a small

technicality in their contract. It's not
important.

But they are young and inexperienced.
They have no understanding what is

at stake.

China is our rival in Asia. We are in
fact trying to keep Chinese influence

of Afghanistan. We don't want them to
become the supplier of choice to the

Afghan army. So the idea that in a
situation in Afghanistan you turn to the

Chinese directly or indirectly, that is
suicide for the American military.

But in June 2007, millions of rounds of
Chinese -made AK -47 ammunition

repackaged by AEY arrives in Afghanistan
in violation of U .S.

foreign policy.

That's a much bigger picture than the 21
-year -old kid from Miami Beach who

just wants to make a buck.

He's not in a position to make that
decision.

It's the Pentagon and Congress that's in
the position to make that decision.

Over the next few months, more than 35
shipments of AEY ammo will be delivered,

for which the Army will pay AEY more
than $10 million.

Now that the money is coming in,
DiVaroli moves AEY to an office

hires a few employees, and he is on a
huge power trip.

It was a Lord of War -type feeling.

I am the master of things that go boom.
That went to his head.

He became very domineering.

He started screaming at all the
employees, you know, why aren't they

harder? He became insufferable.

And for Packhouse, working for AEY is
becoming financially impossible.

I had not been paid a penny on the
contract the entire time I worked on it.

was living off my savings at the time.

which were dwindling.

Packhouse says that when he starts
demanding payment from the millions that

coming in, DiVaroli answers he will pay
one -tenth of what Packhouse feels he

has owed.

Packhouse quits and says he will see
DiVaroli in court.

I mean, I always knew that he was a
tough negotiator, but I never thought

he would steal everything from me. You
know, I helped him win this thing. I

thought he appreciated me.

I found out that he didn't.

And that was really hard.

About the same time, DiVaroli turns on
Ralph Merrill, coming up with a story

that dramatically reduces Merrill's cut
on the deal.

In the end, Merrill says DiVaroli took
everything, including the nearly $1 .5

million he invested.

I didn't think that was a very nice
thank you for supporting him on his

Up next, Ephraim DiVaroli, a national
scandal.

This kid gets a $300 million contract,
taxpayers' money from the United States

of America.

That's a disgrace.

What does it take to hide the origin of
the Chinese ammunition?

Look inside an AEY ammo crate at
AmericanGreed .CNBC .com.

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Join the Greed social network.

We'll be right back.

By August 23, 2007, Ephraim DiParoli
says he has become a hugely successful

gunrunner by playing by his own rules.

He writes in his autobiography, he has
circumvented international laws, maybe

even broke a few.

And that day, he gets a call from the
office reporting that federal agents

the Defense Department's Criminal
Investigative Service have just arrived.

We had reasonable suspicion that AEY was
moving the

goods, the USML items, into Iraq without
the proper approval from the State

Department. It's good news for DiVaroli.
The agents are only checking on his

licensing.

Dave Rowley is a cool customer. He gets
the search warrant. He says, this is

licensing stuff.

This is not a problem.

David Packhouse is not there.

He no longer works for AEY.

I got a phone call from one of the girls
who worked in the office, and she told

me, hey, I don't know if you know this,
but the federal government just raided

our office.

Immediately I thought, it's probably
because of the Chinese ammunition.

Packhouse decides to play it safe. He
turns himself in.

And soon, the investigation into AEY's
licensing issues changes into an

investigation of fraud against the
government.

Agent Bentavlos heads to Albania to
inspect the ammunition AEY is selling

government. So when I walked in, I was
shocked. The ammunition was in cardboard

boxes. It had AEY placards attached to
the individual pallet. There were large

piles of these tin cans that appeared to
be Chinese writing on them.

And while Agent Mintablos is
investigating AEY, so is the New York

And on March 27, 2008, Ephraim DiFaroli
becomes front -page news.

The reaction to the discovery that a
large supplier of munitions to

is a 22 -year -old kid selling
questionable ammo is quick and loud.

Number three, war profiteer gate. Mr.
Bush's defense and state departments

scrambling to explain Ephraim DiBiroli.

In June, the Congressional Committee on
Government Oversight holds a hearing to

investigate the AEY contract.

This kid gets a $300 million contract,
taxpayers' money from the United States

of America.

That's a disgrace.

Has anybody been fired for this? Can I
ask the panel? Anybody get their walking

papers for what happened here?

The Army answers that it made a mistake.

And over time, it becomes clear that the
wars in Iraq and Afghanistan created a

contracting bonanza for many companies.

DiVaroli is hardly alone in his goal to
get rich from the business of war, but

his case still stands out.

Yeah, the Commission on Wartime
Contracting estimated that there was $30

billion in waste, fraud, and abuse.

But at the same time, some of that was
just overcharging or waste. This was

illegal, what DiVaroli was doing. This
was in a class by itself.

By June, DiVaroli's dream of becoming
another lord of war seems to be over.

He, David Packhouse, and Ralph Merrill
are indicted on charges of fraud.

Packhouse and DiVaroli both plead
guilty.

I said this to him, and I sincerely
believe this, that Ephraim, in a weird

this is good for you. This experience is
going to show what happens when you're

not careful and you let things go too
far.

And he actually agreed with me at that
point.

I didn't know until later that he
started up gun running again.

Up next, DiVaroli keeps up his act.

He made the comment with an ATF
undercover agent, once a gunrunner,

gunrunner, and I think that sums up his
entire experience.

In the summer of 2010, as he is awaiting
sentencing...

Ephraim DiVaroli heads north to Fort
Lauderdale. Now a convicted felon,

can no longer legally own or even handle
a gun. But according to federal

investigators, he arrives at the Markham
shooting range to test firearms

accessories he wants to import and sell
in the U .S.

DiBeroli entered into a contract with a
South Korean munitions manufacturer to

be the exclusive U .S.

importer of 100 -round double -drum AR
-15 ammunition magazines.

In order to sell the parts here,
DiBeroli called local gun dealers to

who would be willing to work with him.

One dealer he calls is suspicious and
decides to check him out.

After doing a little research online, he
was able to identify who DiVaroli truly

was and realize that this is something
he needs to pass on to ATF.

The ATF launches an undercover
investigation with an ATF agent posing

dealer.

The agent and DiVaroli agreed to meet on
August 20th. And the first thing he did

was look at firearms that the undercover
agent had brought, handled those

firearms voluntarily.

And he drove to a local gun shop, and he
purchased over $1 ,000 worth of

ammunition. And that is illegal.

A convicted felon is prohibited from
possessing not only firearms, but also

ammunition.

Diveroli is arrested.

He made the comment with an ATF
undercover agent, once a gunrunner,

gunrunner. And I think that sums up his
entire experience.

Four months later, DiVaroli pleads
guilty to the weapons charge.

His sentences in both federal criminal
cases add up to four years in prison.

At the end of his autobiography, he
claims that he was entrapped by the ATF

that, quote, the government me, stripped
me of everything.

And what about those who followed him
into his fraud?

Ralph Merrill pleads not guilty.

Merrill goes to trial and basically
tries to present himself as, I was a

investor in this deal.

The government produces emails that show
Merrill joined in the decision to

conceal the origin of the Chinese ammo.

He is convicted on charges of conspiracy
and wire fraud and is sentenced to four

years in prison.

I went to a camp.

a minimum security facility in Florence,
Colorado, and did my time.

As it turned out, it obviously would
have been better to plea.

But to me, a plea would have been a lie.

David Packhouse, as a result of his
guilty plea and his cooperation with the

government, is sentenced to seven months
house arrest.

It's a time when he has nothing to do
but play his guitar.

I couldn't leave the house, so I
couldn't play with other musicians.

So I bought a drum machine, but I
couldn't play guitar and use the drum

at the same time. So I started thinking,
I need a drum machine that is hands

-free. And he decides to create one
himself.

The BeatBuddy is a drum machine in the
form of a guitar pedal.

Today, Packhouse is fulfilling his dream
to make it in the music business as the

CEO of his own company.

Ask Pacaus if he regrets teaming up with
Diveroli, and the surprising answer is

no.

I always told myself that as soon as I
made what I felt was enough,

that I would quit that business and
pursue my passions.

But now I sometimes question about
whether I ever would have known when was

enough, which is why I'm happy.

that the whole thing blew up in my face
and kind of shook me up and made me

realize what's important in life.

Eight years after A .E .Y.'s fraud is
discovered, the War Dogs movie opens.

David Packhouse gets a cameo appearance.

But Ephraim DiVaroli is left out.

He files suit, claiming Warner Brothers
stole his story.

And while the studio denies his charge,
he wants a cut of the film's profits.

And that's what this story is all about.

Profits. And the irresistible pull to
cross a legal line to get millions of

dollars that seem to be just within
reach.

I don't think they wanted to necessarily
break the law, but they let themselves

give in to that temptation to make
money.

The greed took over and...

They decided to commit a massive fraud
against the government.

They played high -fix poker.

They won a couple hands, but at the end,
they lost everything.