Efraim started the company called AEY Inc., and asked David who was working as a massage therapist at the time, to join his company. They had been friends in junior high but Efraim had moved to California so they hadn’t seen each other in years but ran into each other again at a funeral.
Efraim found out that the Department of Defense was accepting bids on-line for military supplies (i.e. ammunition, sunglasses, tents, weapons, etc.), so he began sourcing supplies from other countries and turning in bids which at one point his company had been awarded 149 different contracts. Efraim was an amazing entrepreneur but he wasn’t an ethical person which David found out later.
A tremendous opportunity showed up on-line for companies to bid on one million rounds of AK-47 bullets and they found a source in Albania. Before they made the purchase they flew to Albania to visit the warehouse to make sure it was the right product and that they had enough of it. Everything looked good so they locked in a price and then submitted a bid to the Department of Defense. They came in with a bid that was millions of dollars less than their competitors so they got the contract for $300 million dollars which was more than their wildest dreams.
Their excitement quickly left when they found out after the fact that the ammunition came from China. The canisters of bullets they inspected didn’t reflect they were from China but all the rest of the crates and canisters had Chinese writing on them. The problem is that the U.S. government would never accept ammunition or weapons from China or vice versa as it was against our trade agreement with them. This would mean the deal would be off and the guys would be out millions of dollars.
Efraim came up with an idea to solve their problem and that is he convinced the man who ran the warehouse to take the bullets out of their containers and put them in plastic bags and then placed the bags in heavy cardboard containers for shipping; this way no one would know the ammunition was manufactured in China.
His plan worked but one of his major character flaws was that he was greedy. They would’ve gotten away with it but unbeknownst to David, Ephraim never paid the man who ran the warehouse the $100,000 they owed him for having his employees repackage the bullets. The man called the U.S. Department of Defense and told them about how David and Ephraim hid that the ammunition came from China. So they missed out on making millions of dollars because Ephraim wouldn’t pay the man what he was owed figuring that since he lived in Albania he wouldn’t come after the money.
It didn't take long for the FBI to pick them both up and close the company down. This was after David had already quit the company because he couldn’t stand how corrupt Ephraim had become. Ephraim had even destroyed David’s contract with the company so he refused to pay David his shares when he left. David went back to working as a message therapist.
The FBI knew David wasn’t the mastermind behind the deceit so he only got seven months of house arrest which allowed him to be with his wife and young daughter. Ephraim and an investor who knew what was going on in the business, served around four years in prison for defrauding the Federal Government.
This fiasco led to many Congressional hearings about the military’s auditing, bidding, and vetting processes in working with the private sector on supply acquisitions so it would be extremely difficult for something like this to happen again but there’s no doubt in my mind, some entrepreneur will try.