Youthful bullet dealer charged with Pentagon fraud

MIAMI (Reuters) - A 22-year-old Miami Beach man who managed to get a $298 million Pentagon contract to supply ammunition despite having no experience in the arms trade was charged with trying to defraud the U.S. government, U.S. officials said on Friday.

Efraim Diveroli's company AEY Inc. was suspended from federal work in March after the U.S. Army found out that ammunition it was contracted to supply the Afghan army consisted of Chinese gun cartridges that were more than 40 years old.

The company and its president had falsely told the Army the ammunition was manufactured in Albania, the indictment unsealed on Friday said. U.S. law prohibits the acquisition of munitions from Chinese military companies.

Diveroli was charged along with three officers of the company at the end of a one-year investigation, said U.S. Attorney Alexander Acosta of the Southern District of Florida.

Acosta said one email traced by investigators showed Diveroli and his co-defendants discussing a photograph of an employee scratching the words "MADE IN CHINA" off a wooden crate of munitions.

He said sourcing rules for ammunition exist for many reasons, including quality control, and that contractors were responsible for the effectiveness and safety of the munitions they provided the U.S. military and its allies.

"But these contractors intentionally cut corners to line their own pockets," Acosta said at a news conference. "They risked the safety and the lives, not only of our own troops, but those of our allies as well."

As ammunition ages, it becomes less reliable and less accurate.

At the time of AEY's suspension, Pentagon spokesman Bryan Whitman said there were no reports of safety problems with the ammunition. But he added that could be because the munitions might not have been distributed to soldiers due to its condition.

Diveroli and his co-defendants were charged with conspiracy to defraud the United States by making false representations and by conspiring to commit procurement fraud, making false statements to the U.S. Army with regard to the country of origin of the ammunition, and with procurement fraud.

Acosta said that most of the $298 million contract was never paid out. The charges themselves involved 35 shipments of Chinese ammunition costing around $10.3 million.

Asked whether it was normal for the Pentagon to issue large contracts to contractors barely out of their teens -- Diveroli was 21 when his company won the deal -- Amie Tanchak, an agent with the Pentagon criminal investigation service, said it was "not common."

"There's a lot fraud in defense contracting," she said.

The various charges against the defendants carry prison terms ranging from five to 10 years.

(Editing by Michael Christie and Bill Trott)