The Jordan Harbinger Show - 838: David Packouz | The Real-Life "War Dogs" Gun-Runner Part One.

Episode Date: May 23, 2023

David Packouz (@DavidPackouz) is an entrepreneur, inventor, musician, and CEO of Singular Sound. He's also a former arms dealer, whose story was portrayed in the movie War Dogs with Jonah Hill, Miles Teller, Ana de Armas, and Bradley Cooper. [This is part one of a two-part episode. Carry on to part two here!]  What We Discuss with David Packouz: How does an Orthodox Jew with 10 siblings become an international arms dealer? How federal government contracts work — and why some of them almost always go over budget. How corruption at every level of the Russian government hamstrings its military and stifles innovation. How David and his partner Efraim Diveroli got hooked up with lucrative government arms deals when they were barely adults. The countless ways in which Efraim is not as charming as Jonah Hill made him out to be in War Dogs. And much more... Full show notes and resources can be found here: jordanharbinger.com/838  This Episode Is Brought To You By Our Fine Sponsors: jordanharbinger.com/deals  Sign up for Six-Minute Networking — our free networking and relationship development mini course — at jordanharbinger.com/course!  Like this show? Please leave us a review here — even one sentence helps! Consider including your Twitter handle so we can thank you personally!See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

This episode is sponsored in part by Conspiruality Podcast. You know how I'm always talking about critical thinking and spotting manipulation? Well, there's a podcast that's all about dismantling new age cults, wellness grifters, and conspiracy mad yogis, basically the wild overlap of spirituality and misinformation. It's called the Conspiruality Podcast. The hosts, a journalist, cult researcher, and a philosophical skeptic dive deep into how this stuff spreads, from Project 2025 and the Heritage Foundation's dystopian vision of the future to how former leftists get pulled in. to far-right conspiracies. An interesting episode to check out is called Speaking Truth to Goop, where Jen Gunter breaks down the pseudoscience behind the wellness industry in a way that is super

entertaining and eye-opening. It's sharp, funny, and makes you a lot harder to fool, which, if you listen to this show, you know I'm all about that. From exploring cults to analyzing our cultural and political landscape, the Conspiruality podcast will help you stay informed against misinformation and resist fear tactics. Find Conspirality on Apple Podcasts, Spotify, and wherever you get your podcasts. coming up next on the Jordan Harbinger show. The King wanted to buy like attack helicopters and heavy machine guns and like a large amount of them and various crowd control equipment.

Yeah, let's do this, you know. We'll put together a Save the King package. Welcome to the show. I'm Jordan Harbinger. On the Jordan Harbinger show, we decode the stories, secrets and skills of the world's most fascinating people and turn their wisdom into practical advice that you can use to influence. your own life and those around you. Our mission is to help you become a better informed, more critical thinker through long-form conversations with a variety of amazing folks,

from spies to CEOs, athletes, authors, thinkers, and performers, even the occasional organized crime figure Fortune 500 CEO or Russian chess grandmaster. And if you're new to the show or you want a handy way to tell your friends about the show, I suggest our episode starter packs. These are collections of top episodes organized by topic that'll help new listeners get a taste of everything we do here on the show. Topics like abnormal psychology, technology, and futurism, scams and conspiracy debunks, and more. Just visit Jordan Harbinger.com slash start or search for us in your Spotify app to get started. Now, as most of you know, we got an AI chatbot on the site.

You can search for anything we've ever covered in any episode of the show. That means any interview, any question from Feedback Friday, any promo code for any sponsor. Jordan Harbinger.com slash AI is where you can find it. And, you know, let me know if it tells you. you that my mom is a racist or something because that was one of the first problems we found with the AI bot and hopefully they have fixed that. But it also does other goofy stuff. So do let me know and enjoy. Now today on the show, this is a particularly long episode. It's in two parts. I loved it. It was a hell of a lot of fun. David Packow's really smart guy. His story became the movie

War Dogs with Jonah Hill. Essentially, these two kids, because they were kids at the time, became massive arms dealers for the United States government, mostly anyway, from what I understand, and they got in a whole hell of a lot of trouble. I don't want to spoil the story. It's a great story. It's really, really interesting and well told because, again, David Packhouse is a sharp guy on the street and narrow these days, not so much as former business partner played by Jonah Hill in the movie. I know you'll enjoy listening to this conversation as much as I enjoyed having it. So here we go, part one with David Packhouse. You know, it's funny, I was meaning to do this show for something like five years, and I was like, I got to track down these guys.

And I tried to track you down for a second, and then I was like, I'll get this F-Rame guy. It was like really hard because he was in prison. And I thought, you know, okay, fine, then he's out of prison. And all these guys are like, oh, yeah, I knew him. He was my celly. And I can get you him. And we talk all the time. And I pitched that.

And it was like, yeah, he's interested. And then it was like, he ghosted me. And I thought, damn. And I came so close. so many times, instead of being smart about it and just going, like, you know what, screw it, I'll get Packhouse. I just focused on Ephraim, and the guy has vanished. He's just gone.

Yeah, don't feel bad. He doesn't do any interviews. Yeah. I just thought like, oh, he's interested. And then it was like, no, he's just dicking around or, like, was drunk that day and said, yes, and then vanished again. Yeah, that tends to be what he does. So, yeah, it's not you.

It's him. It doesn't make me feel bad to have this happen. This is like the story in my life with many guests. It just was sort of dumb because I emailed you and you're like, yeah, let's do it. And it's like, damn it, that would have been so much easier. I would have saved myself a lot of time if I just asked you earlier. And frankly, the more research I did, the more I was like, oh, he's not this like cuddly Jonah Hill character. He's actually a bad guy by a long shot.

Yeah, he is. When you watch the movie and then you read the book and you get the real story and talk to other people that know you guys or knew you guys, it's just really clear that Hollywood was like, let's make him like this cool, funny, quirky guy because it's a better story than this guy's a real bastard. Right. Yeah, that's exactly how it was, yeah. And the screenwriter told me that specifically,

that they did that on purpose. You have to, because when you get the real story, you're just like, I feel gross being, this guy's gross. You know? It's true. I feel bad because we're sitting here, I'm sitting here talking negatively about this guy who's not here to defend himself,

but at the same time, well, he's a convicted criminal, and he screws people over. And it's kind of like he doesn't maybe seem to have learned anything by going to prison, possibly. And he's been given many chances to defend himself, but he turns it down. I guess the first question is, how does an Orthodox Jew with, what is it, 10 siblings, become an international arms dealer? Is that a good place to start? I guess that's...

Before people are like, it's the Jews. Don't worry, he's a failed arms dealer. Right, thank you, thank you. That makes it better. Right, yeah. Look, we can't be in the Illuminati if we're not doing a good job of being, you know, infallible in our cabal to control things. Right, right. I will say that from doing these podcast interviews, it's unfortunately really brought home to me the level of anti-Semitism out there. Yeah. Yeah. Very large amounts of comments on, you know, my Jewish background and, you know, that being the source of all bad in the world.

So, you know. If it makes you feel any better. it's sort of a mark of you having done literally anything in your life that's played any outsized role that people can latch on to. There wasn't a blog article a long time ago, and I don't want to go too far down this rabbit hole because it's frigging irrelevant, but it was like Jews of the podcasting community. And it's like all these podcasters that happen to be Jewish. And it's like, well, you know, okay.

I mean, it's still, it's like being the world's tallest midget. We're still podcasters. Who cares? Right. Like, really, who cares? Yeah. The guy linked in that. post to another post that was like Jew bloggers.

And it's like, so you're saying that these guys who write on the internet are just happen to be Jews and that that must mean, I mean, talk about grasping its straws. Yeah. It's like Jews of the, who own ice cream shops. And it's like some kind of big conspiracy theory. Like, they're really thinking that this hits the like, nice. Very well done.

Well done. You got it. All right. So your family is. Orthodox Jews. Yes. You meet Ephraim, your future business partner played by Jonah Hill, but again, totally not Jonah Hill at synagogue. You're right. And how does that go, you end up with like a bed sheet business? This is random and very unsexy, which tells me either someone told you about it or you're really good at seeing angles other people don't see with respect to business.

So the way I got into the bed sheet thing, which was before the arm stealing thing, was it was just a friend of mind that I had met in Israel, you know, Q, the anti-Semitic commons. Right. And I had met someone in Israel who was in the nursing home supply business. And he was buying from distributors in the United States, you know, various equipment, you know, like including bed sheets, towels, et cetera. And he had told me, because at the time, I was already importing SD cards from China and selling them on eBay.

Oh, okay. And that was a great business at the time because it's extremely easy to transport. They're very tiny and but relatively valuable. And nowadays, of course, it's all flooded with Chinese knockoffs. And so I wouldn't say that business is that good anymore. But at the time, it was a pretty good business. So I was doing pretty well. And he said, oh, you know, you have some experience sourcing internationally and importing things. Why don't you, if you can get me a better price on the bed sheets or the towels that I buy from these distributors, I'll, buy from you and we'll both make some you know i'll save money you'll make money and so i thought well i mean that's a great idea why don't you know it's not that if you can find SD cards why can't you find bed sheets so i started researching and uh eventually realized that the bedsheets and towels the best price were actually from pakistan and i started importing from there and selling to him and to a few other people and that started growing that business totally random but unlike the movie i wasn't actually going to nursing homes in person and, you know, trying to sell the whole bunch of bed sheets that I had unwisely bought and stuffed my apartment with. That's not what happened.

I was just a broker. I, you know, I would find, you know, large buyer and say, hey, you know, these are my prices. And they'd be like, yeah, I'm interested in this, that, and the other. And I would just do the deal, just putting the supplier and the buyer together and, you know, get a cut without actually even putting up my own money. So it was a pretty decent, pretty decent business. And I was about 23 years old. I was 23 at the time. I was doing the bed sheet business, the SD card business. I also was working part-time as a massage therapist.

That part is true in the movie. I had gotten into that when I was 20. I had like a neck injury from a car crash and I wanted to learn how to fix myself. And I realized that massage therapist made a lot more money than minimum wage and which all my friends were working at the time while they were in college and I went to massage school and learned gut license as a massage therapist. And so I had a few multiple streams of income. I was also in school at the time studying chemistry.

And that's when I bumped into Ephraim. We had known each other since I was 16. He's actually four years younger than me. Oh, wow. In the movie, yeah, they say we're the same age, but he's actually four years younger than me. So I met him when I was 16. He was 12.

We were both in synagogue and didn't like to pray. So we both sneak out, along with the other kids who didn't like to pray, which was most of them, you know? Yeah. Very few kids enjoy praying. So that's how we met was because we, our families went to the same synagogue. And then his family shipped him off to L.A. because I think he, he got tested positive for weed. We both went to private Jewish schools, but different ones. So we weren't in the same school. But he, he got tested positive for weed. And so they said, oh, you're not taking the rules seriously. You're going to join the real world and work for your uncle and his uncle owned a big pawn shop in south central illay and he got obsessed with guns he just

loved it he you know started selling his the guns that were in the pawn shop and then he started buying guns on the gun boards using his uncle's name because he was 16 yeah yeah exactly yeah the forums exactly he was 16 years old at the time so he couldn't legally own a gun but he used his uncle's name to buy guns and then sell them and you know he worked something out with his uncle so that they would split the profits. And his uncle also taught him how to bid to the government. So his uncle was selling equipment, handguns, ammunition, bulletproof vests, boots to the local and state police.

And so he taught Ephraim how to bid on these contracts, you know, go through the government system and offer them various equipment that you want to sell. And so he learned how to do that and worked for his uncle for about two years. And then he claims, Ephraim claims that his uncle screwed him out of 70, grand. His uncle claims that Ephraim screwed him out of 70 grand. So, you know, I believe both of them. Yeah, yeah, that's a good diplomatically to put it. I mean, you do have experience with one of those people. Yeah, and I've heard about the other one. So his uncle doesn't have the best reputation either, you know, in the industry. So he came back to Miami when he was 18 years old and he took over his dad's corporate entity called AEY, Inc, which makes it into the movie.

his dad hadn't used this corporate entity for anything other than I think some label printing business that he had done years ago. It was more or less a dormant company. And so he took over that business and registered it with the federal government and started bidding on contracts. This was in 2004, which was right after the invasion of Iraq. And the United States had pretty much bombed Iraq to Smitherines and was looking to rebuild it and make it into a democratic country. And so part of that process was supplying their government with various equipment, including the new police and army force with weapons and ammunition and various military supplies. So he started bidding on these contracts, started doing very well. And after about a year of working on his own, we bumped into each other at a mutual friend's house.

And as, you know, everyone does, what are you doing these days? And I told him about my sheet business and about the SD card business. And he was like, oh, that's really cool. You know, that's more or less the kind of business I'm doing, you know, finding suppliers overseas, negotiating on price, arranging logistics, arranging import permits, you know, all those like processes that you're doing. It's more or less the same thing I'm doing. But I bet I'm doing it on a much bigger scale than you.

And so, you know, maybe, you know, we can work together. Maybe you can come work with me and we can make a lot more money together. And so I asked him, well, okay, well, how much money have you made? Right? A natural question. And he goes to me, he's like, you know, I'm going to tell you, but only to inspire you because I'm not bragging. Okay. And he opens up his computer and he logs into his bank account and he shows me his bank account and it had $1.8 million in the bank. Wow. And he's what, like 20 something years old? He's 18 years old. Oh, my God. Okay.

Yeah. Wow. And it's not fake. It's not a screenshot. It's not him talking. It's like he logged in. He logged in. I saw him log in. He was not faking it. And I knew he hadn't gotten that money from his parents. I know who his parents are. You know, they didn't give him that money. His grandfather is actually a billionaire. Oh, wow. Yeah, but his grandfather is also one of these characters that he doesn't give anything to anyone. You know, he's like, you know, Scrooge kind of. character. Scrooge McDuck. Yeah, exactly. Like his grandfather got into the papers because his, his grandmother had divorced him, just to give you a little family background, his grandmother had divorced him. I think they had had like six or eight children together or something. I forgot how many.

And it turned out that his grandfather, that she found out when he divorced, when she divorced him, that he had never married her legally in the first place. It was just a religious marriage. And so he decided that he was going to give her zero. Wow. I don't. I don't think that argument would fly with any judge, though, after X number of years. So she sued him, and it was, I believe, the largest alimony case in history. She sued him for $700 million. Well, good for her. Because that's BS.

Like, he obviously had planned that, right? He's like, I want to leave this bag. I'm going to just not pay her because I'm a bastard. Right. I mean, they were married for like 40 years or something crazy. That's kind of gross. Yeah, that's gross. Not to speak badly about his whole family, but he's got family members in there who are

that sorts of characters. Where did he learn how to behave like this? Oh, the apple has not fallen far from the tree. A lot of apples. I will say that I know his dad and his dad was a really upstanding great person and, you know, he's a fine person. So, you know, I won't say like his whole family. I won't speak badly about his whole family. But a few members of his family are, you know, not the most straightforward of characters, I guess you could say.

Yeah. So after he showed me that, I was like, holy crap. I mean, just like I had the same reaction that you had. I mean, I was blown away. I was like, this guy's 18 years old, and he, you know, has a 1.8 million in the bank after working for a single for one year on his own. Yeah. He obviously knows what he's doing.

He knows this business. And he's making way more money than I'm making selling bed sheets or SD cards. So it seems like a pretty big opportunity. And so I said, okay, well, I'm in. And, you know, teach me what you know. I do have some questions. I mean, a lot of people are probably like, well, some of that money's operating capital. It doesn't matter.

He still had to get the operating capital. The government doesn't just cut you a check when you start selling them something. I mean, government pricing might be worth doing a little minute on this. A lot of people don't know. They'll go like, oh, the government pays $500 for a toilet seat. I mean, okay, there's probably some stuff like that, but the margins are agreed by the government. You can't just be like, here's what it costs.

It's like, here's what it costs, and here's what will pay you based on your costs, which we are auditing and looking at your sources and making sure that, like, you're not just lying so you can make a bunch of money. What you're talking about is a cost plus contract. Yes. Yeah. And so there's different types of contracts with the federal government. And the cost plus contracts, they tend to usually reserve that for items that really only one or two or three companies can make.

Like, for example, like F-35 fighter jets or nuclear bombs or, you know, nuclear submarines or something that like really only like Lockheed Martin or Northrop Drummond or Raytheon could make. And so because there's very limited competition, they'll do what they call a cost plus where they'll be like, you're going to open up your books. You're going to show us exactly what the costs are. And we're going to give you an agreed upon percentage, 1.5 or 2 percent on top of that, that will be your profit. And that's one way of doing things. Of course, that has some negative incentives because then the more the contract costs, the more their profit ends up being. So they have an incentive to inflate their costs as much as possible, so they won't do things efficiently, which is why the government is famous for having cost overruns and paying way more. NASA faced this.

NASA as a government agency did this for a very long time. That's why their SLS rocket is extremely over budget. Pretty much every project that they've ever done is extremely over budget. They only started doing, this is a complete detour, but they only started on a space. No, I like it. I'm here for it. So, yeah, so the commercial crew, or it was before that, the space station resupply missions that SpaceX competed under, that was their first real competitive projects. And those contracts ended up coming in on budget, on time, because the incentives were all aligned that, you know, they had to do that.

But the SLS project, which is the standard cost plus contract, is way over budget because the incentives are not aligned. But anyway, the contracts that we worked on were not cost plus. They were standard competitive contracts because we did not make F-35 fighter jets or anything in particular that they couldn't get anywhere else. We were dealing with commodity items like ammunition and weapons and bulletproof vests and things that a thousand companies can make. So the way it works is the government will list what they want to buy on their site.

And they will say, you know, you have until this date to give us your best price. And then they collect the prices from all the companies that want to bid on this contract. They don't tell anyone what the prices that they're getting from the other companies are. So that's all a secret. So every company is incentivized to give the lowest possible price that they're willing to do in order to win the contract. And then the government takes all the offers and they analyze it, and depending on what factors are important to them. Obviously, price is an important factor, and that plays a major role.

But depending on the contract, there could be other factors like the reliability of the supplier, the proposed delivery date, the quality of the material that you're proposing to deliver. And they take all that and they have like a scoring system, and then they decide on what's the best value in total to the government. and they award that contract to the winner. And then that contractor has the opportunity to deliver on the things, on the items that they promised the government, that they contracted with the government to deliver.

And once they deliver, the government inspects it. Once it passes inspection, they issue a certificate of conformance, they call it, a COC, which is a document stating they got the stuff and it passed inspection. And then they submit that to the payment department. And 30 days later, you get your money. So you do need to fund the contract until, you know, from the point. So like if you are being a broker like we were, most companies are not going to ship you stuff unless you pay them in full in advance.

Some large companies with great credit may get being able to buy things on credit, but most small middlemen will need to pay for things in advance before the company, the supplier ships, especially international companies. They won't give you any credit. I mean, that's out of question. Only national companies within the United States would even consider it. That's worse than podcasting, by the way. Those bastards, like, you get net 30.

I would kill for net 30, but, you know, it's like net 90s sometimes in podcasting. I think about it. I mean, it can be bad. But then again, I'm not fronting $2 million for a bunch of rockets or ammunition or more than two million. Who knows? Yeah. I mean, different government departments do have different standards.

The vast majority of them do net 30, but there are some departments that were. will say this contract is net 60. It's not like a sentence stone kind of thing. But most of the things that we dealt with were net 30, though sometimes they would be a little bit late paying. You know, like the State Department at the time for some reason still paid with paper check instead of sending you a wire, you know? It's painful to even hear about it.

How can the government even test doing business with literal kids? I mean, okay, fine. He's 18, you're 22. Have you met an 18 and 22 year old and been like, I want to give these guys $5 million, or in your case, $300 million. Yeah. I wouldn't even entertain the idea. I wouldn't even take the call, man.

I wouldn't. Right. So the way they work is that for contracts for the government, a contract under $100,000 is considered small. Yeah, that makes sense. Yeah. So for most contracts that are under $100,000, they pretty much go by best price. So whoever offers them the best price, they'll roll the dice and see if you can deliver.

So you don't need any experience under your belt. You know, you don't need to be able to prove that you're a reliable supplier in order to win these contracts. So once you have like four or five of those contracts, now you have what they call past performance, which is proof that you are a reliable supplier, at least for these items that you have proven that you can supply. And then you could bid on bigger contracts. you could bid on million-dollar contracts plus. So by the time that we bid on the $300 million contract, which was the high point of the movie, we had already delivered, I think, something around like 150 contracts to the government.

Oh, wow. Of various items and various sizes. I mean, we had already delivered, and by we, I mean, the company, not me personally. Right. The company had already delivered, I think the largest contract at that time was, that the company had delivered was about $15 million. Still high. Yeah, so not nothing.

A $15 million contract is significant. It's not $300 million, obviously, but it does show that the company is able to deliver large quantities of high value weapons and ammunition, which is what the government used as the basis for awarding us that large contract. I assume most democracies have this kind of process because it's transparent and it's sort of capitalist and supposedly breeds efficiency, even though we found out that it doesn't. Right. But this is a little bit of a tangent.

But I'm guessing Russia doesn't have anything like this, right? And that may be why they have all these equipment issues in the Ukraine war. Yeah. Because corruption in this process would be so deleterious and inefficient. Yeah. So I don't know what Russia's official procurement process is, but they are famous for, or I should say infamous, for having corruption at all levels of the government. One of the most famous examples that we saw in the Ukraine war

was that a lot of the convoy in the beginning that was heading towards Kiev, a lot of their tires were blowing out because they were using cheap Chinese tires and not the standard military spec tires. And then you have to question, well, why was that? Well, it was probably because someone along the supply chain decided that they were going to pocket the difference.

And you see that in many levels of the Russian military. You see that in their space program as well. There's a reason why their space program has stagnated since the fall of the Soviet Union. The entire system is really built on patronage and on corruption, where everyone is really just looking to get in the good graces of someone more powerful so that they could get a little piece of the corruption pie. And that doesn't breed, obviously doesn't breed efficiency because there's money going towards oligarch yachts instead of towards the corruption pie. where it's supposed to go. But it also doesn't breed innovation because it's very disconcerting and very disheartening for the engineers of the rank and file people when they know that the resources they need are just being squandered by the higher-ups and they don't get all the equipment

they need so they can't do the job that they need to do. But they also don't want to do it because they aren't getting a piece of that corruption pie. So they're going to, escape by with as little work as possible. I mean, and this kind of is a remnant of the whole communist system where because there was no capitalist incentives for people to do a good job versus a bad job, everyone just did a mediocre job and did the minimum possible thing because there was not really that much room for advancement and opportunity. Or operated in the black market because they were like, my stuff's better, I should get a higher price. Oh, it's illegal? Okay, I'm just going to break the law. Or leave the country and defect and go to a place where my efforts are rewarded.

Exactly. To be fair, a lot of people are going to go, well, wait, this bidding process sounds like it takes a really long time. I bet we're not doing that with Ukraine. Right. Because now it seems like Biden, it says, hey, Congress, I need $48 billion. And they go, okay. And then it's like, here's a bunch of weapons. It's a different sort of emergency situation, I assume. Yeah. So, with you, Ukraine, when you have like an emergency situation like that, the vast majority of the military equipment that was supplied to Ukraine since the start of the war was actually from the U.S. military's own stocks. So equipment that the U.S. military already owned and was keeping in reserve for themselves.

So the U.S. military can give that immediately. They have their own logistics system, one of the best logistics systems in the world, their own planes and everything, and they could just fly it all into Ukraine. and supply them immediately. Now what's going on is because the U.S. military has used up so much of its own stocks that now they're trying to replenish those stocks. So they are putting out for contract to the manufacturing companies to, you know, manufacture more of that equipment that they gave to Ukraine. That makes sense, right? Because if you just say, hey, we're selling our own stuff because it's an emergency, there's probably a lot less hoops to jump through. And I know

a lot of it is, hey, we're looking for Soviet-era ammunition. So we're going to get it from Romania, which is not going through the United States sort of bidding process. And also the Ukrainian troops are trained on this equipment. Their guns fire that kind of ammo. Yeah. But once that stuff's gone, it's like, well, now we need Northrop to make those rocket systems that are going to go there. And that's probably going to take a longer time. The big issue is that because we live in a capitalist system and the military is the only buyer of these items. You know, no one else buys anti-tank rockets, right? Right. So these companies that make this equipment like Lockheed Martin, Northrop Grownin, they only have the minimum amount that they think, you know,

they have the minimum production lines set up that they think is the government is going to require. And for the past 20 years, the U.S. military has been focused on anti-insurgency operations, which is very different than a large-scale land conflict where you have to take out tanks. You know, the Islamic State, right, didn't have tanks. So they didn't have to manufacture these anti-tank rockets or anti-aircraft rockets because they weren't being used. So for the past 20 years, the U.S. military has a minimum level of stock that they feel that they would need in a conflict situation.

But they only really stock it for themselves, right? for the various conflicts that they think that they might be involved in, they don't stock emergency supplies for a large land war in Europe because that hasn't happened since World War II. No one was really expecting that. So now that that's happened and suddenly we're shifting from a peace economy to a war economy, not obviously the whole economy, but for these particular items, suddenly there's a demand from mortar shells that far, far exceeds what was a normal. production rate in peacetime, and Ukraine is just eating it all up.

Russia has massive quantities still left over from the Cold War, but they're starting to eat through that as well. So they're looking for some of the few friends they have, like North Korea and Iran, to step up and supply them, and now China, which it seems has been supplying them in secret, though they deny it. So everyone's scrambling for supply, and the United States and the West is scrambling to ramp up production because all those production factors, all those factories were on a peacetime footing. And now suddenly you've got a massive land war that's eating up. I think I read something like that Ukraine uses in one month what the, it's like mortar shells, what the United States could produce in a year.

Oh, man. Yeah. So it's a major, major problem. and obviously the side that runs out of ammo first loses. So everyone's scrambling, and that's why Ukraine has been getting such a wide variety of weapons. They've been using their old Soviet weapons, but now they're getting some NATO weapons, but they're getting some weapons from France and from Germany and from the United States, and it's this whole mix.

And like some of those weapons systems use different ammo and definitely different parts. And so it's a huge, huge logistical headache for them. But they're happy to get what they can get because it's a matter of life and death. So they have to. You're listening to The Jordan Harbinger Show with my guest, David Packaus. We'll be right back. If you're wondering how I managed to book all these great thinkers, authors, creators, arms dealers every single week, it's because of my network,

and I'm teaching you how to build your network for free over at Jordan Harbinger.com slash course. This course is all about improving your relationship building skills and inspiring other people to want to develop a relationship with you. It's all done in a very easy, non-cringy, down-to-earth way. It's not awkward. It's not cheesy. It's all practical. Takes a couple minutes a day.

And many of the guests on our show, subscribe and contribute to the course. So come join us. You'll be in smart company where you belong. You can find the course at Jordan Harbinger.com slash course. And no, I don't want your credit card information. You're not going to get billed. There's not a ridiculous upsell. That's just something that I think does well for everybody and makes you appreciate the show just a little

bit more. So enjoy. Now, back to David Packhouse. The stuff is cheap. The Ukrainians are already trained on it, right? This Warsaw Pact stuff. Yeah. The Warsaw Pact stuff, Soviet stuff doesn't fit NATO arms, like you said. And it's just what a mess. I know I don't want to go too far down this rabbit hole, but it is interesting. The Soviet weapons really don't need a lot of maintenance, right? So it's like the U.S. weapons, part of the problem is it's like a Ferrari where the performance is out of this world. Yeah. But you need to know

how to drive the thing. You need to know how to take it apart and put it back together. Every part is specialized. You can't just take like a piece of metal and bash it into approximately the right shape to fit in there, you know, for like a high Mars or something. There's semi-conductors all over the thing. So it's like that versus a Toyota Corolla where you're like, man, my mufflers make it a loud noise. Everybody can hear me coming. You know what? Give me that ball peen hammer, that piece of aluminum and give me some bolt cutters. I'll cut it into approximately the right shape. Hammer it on this rock and it's going to hold up until it doesn't. Yeah. I mean, that has been the Warsaw Pact versus NATO mentality as far as they're,

designing their weapon systems. The Warsaw Pact generally had lower-level trained soldiers, so they had to make their equipment much more forgiving. There's a famous case in World War II where the tanks that they were producing in World War II, the pins that held the tracks on were kept on falling out. On a tank? Yeah, on the tank.

Yeah, and so instead of creating a new system of fastening the tank tread to the tank, they pretty much just put this wedge of metal so that the pins as they get loose, they hit the wedge of metal and it knocks it back in. So that was a famous case of Soviet ingenuity and just kind of speaks to their design philosophy of the absolute minimum and simplest solution, which isn't necessarily a good performance solution, but it is cheap and they can do very, very large quantities. So that permeates their entire design philosophy for all their weapons and ammunition and systems.

And the AK-47 versus the M-16 is the most famous example. The AK-47 is famously durable. You could, like, bury it in the mud for 10 years and it'll still fire. But it's not the most accurate thing. M-16 is a much higher-performance weapon, but it takes a lot more maintenance, a lot more care, a lot more training to use, which is why the United States decided to supply the Iraqis and the Afghans, after they invaded those countries to build up their army and police forces with those weapons and ammunition because they're already trained on them, as you said.

And they also happen to be much cheaper, which saves the U.S. taxpayer quite a bit of money. It all sounds good until you realize that the way to sabotage a tank is to use a crowbar and pull out a few of these pins and now the kind of half drives and the freaking tread falls off. Yeah, yeah. That's true. But luckily for the Soviets, they had 10,000. and more where that came from. So, you know, and you see they're using the same philosophy now where they're just

throwing poorly trained soldiers into the meat grinder of the war. It's quite tragic for the people of Russia because they don't bother. I mean, there were famous videos that came out, I think earlier that showed that a lot of these conscripts that they're forcing to go to war are being supplied with like rusty weapons. and some aren't even being given weapons at all. And of course, the Wagner group is recruiting from the prisons, and they just use them as like a distraction, like the prisoners to, they just throw them into the battle space and see where the, you know,

they obviously all get killed, but they, at least when the Ukrainians are forced to reveal their positions to fire on these incoming people, and then the trained soldiers can, you know, handle those positions now that they've revealed themselves, but it's a, they have a very low value on human life, and they have no problem in just throwing people into the meat grinder with how much hope of survival. It seems like you're really up on geopolitical events. Were you like that when you were a kid, or was it like, let's make some money with guns? And then you're like, hey, the whole political situation that we waltzed into is kind of interesting. Yeah, no, I kind of got my education

on the job, so to speak. Yeah. You know, when I started, I had, no idea about any of it. I was a musician. I was more interested in writing songs and, you know, listening to music and, you know, normal things as, you know, a person in their early 20s is interested in. And I just saw the whole arms thing as a lifetime, opportunity of a lifetime, and then kind of had to learn on the job all the entire geopolitical situation of the world because it affected our ability to deliver. When we fly over certain countries, we had to know whether they were going to give us a permit

or when planning logistics and what was the current situation, political situation in that because maybe they'll say yes now, but there's an election in a month, and there's some, like depending on who's standing for election and who's likely to win, will affect on whether by the time we want to deliver whether that country is still willing to give us an over-flight permit. So I had to learn all these things that I really had no idea about, you know, before getting into the business.

Then it just became interesting to me. Sure. Now I find it fascinating. Even though I'm not in that business. To be clear, I'm not in that business anymore. Right. Yeah. The interest in politics has endured the other parts.

Yes. Exactly. The book is full of different angles that you guys spot. Tell me about this Xbox deal because this is almost, how did big companies miss this? And you guys are like, ah, let's go ahead and make $1. million selling frigging Xboxes. Right. So that was a strange situation.

And to this day, I'm not 100% sure what the truth is about it. Okay. What happened there was actually before I started working with the arms business, because I was importing SD cards. At the time, I was talking to all these electronics, wholesalers. And at the time, the Xbox had just been released, the original Xbox. And that's how long ago it was. but the Xbox was a huge smash hit and it got sold out of all stores and nobody had it.

It was like being sold for triple the price on eBay at the time. And then one of my contacts from buying a SD card said, hey, you know, I've actually got a whole bunch of Xboxes that are for sale. And I said, well, that's obviously a great opportunity because everyone, everyone's looking for Xboxes. So, but it was way more, I think he offered me like a thousand Xbox. which was way more than I had money for. And so I talked to Ephraim and I'm like, hey, you know, I've got this opportunity to do this deal with Xboxes. You know, I know you've got some money, right?

You showed me. Right? So, you know, you interested in doing this. And he was like, oh, yeah, that sounds very interesting. He talked to the guy. And then it turned out that this guy was just a broker for someone else. Yeah. And so somehow, and Ephraim, I'll give him credit, is a very talented negotiator, but he's also very,

he can convince people very, very well to do things that they won't necessarily want to do. He's a really great persuader. Persuader. That was the one that's on the tip of my brain. I think you were trying not to say con artist, but that's a, yeah. He's a persuader. My words, not yours. He is that.

But so he managed to get the guy who was my contact to introduce us to his contact. And then that guy said, oh, well, the minimum order is 3,000 units. And we're like, okay. And then it turned out that he was a broker for someone else and he got him to introduce us to his contact. And we went through five layers. I'm not even, I'm not exaggerating here. It's like literally five different layers of brokers until we got to a company that it was, I forgot the name of the company offhand. But I remember at the time that it was a large multibillion dollar electronics wholesaler.

So it was not a nobody. And we were talking to people from the company because they had the official company address, which was why we thought it was really. It's amazing, though, like, hey, we have this lot of a really hot product. Everyone wants it. Let's talk to two random dudes that we met through three Chinese contact. It's like, how are you not calling Walmart and being like, hey, notice you're out of Xboxes. Do you want 20,000 of them? We have them. Which was so strange, which is that part makes me think that it was some sort of scam. But if it was a scam, it was by a scam from people within this large electronics. Or it could be that they pulled something. shady within their company and they were trying to offload this stuff stuff a hundred thousand of these in a warehouse nobody will know it'll be sold out and then we will sell the crap out of these we'll retire right after that we do it right so like one thing that some chinese manufacturing companies are infamous for is doing production overruns so you know Microsoft will contract

you know let's say a company to produce a million x-boxes and they'll make 1.1 million but they won't tell Microsoft about it, but they will only make enough that they think they could sell without Microsoft noticing. So it can't be like a huge amount extra, but it could be enough that they could double, triple their profit margins that they're making from this contract with Microsoft. And this is something that, especially in the early days of Chinese manufacturing, which is back then in 2006, when this was happening, this was pretty common. So I suspect that if it was not a complete scam. It probably was something a grain market like that, not necessarily illegal, but definitely against their commercial contract with Microsoft.

Sure. So that's probably what was happening. They didn't want to have like a direct contact between them and Walmart because Walmart obviously is going to, you know, advertise the shit out of this and say, hey, we've got Xbox's coming. Then Microsoft will be like, where'd you buy that? It would be like, these guys, I thought they were official distributors. And Microsoft's like, well, we thought that, you know, they were already sold out because that doesn't add up. So, and then someone's going to get in a lot of trouble. So they were trying to sell it, you know, a little bit. On the low.

Yeah, under the radar, yeah. It was like 100,000 Xbox consoles, right? It's not like a few hundred or even a few thousand. It's a massive amount. And it was, what's the value of retail value that's like $20 million or something at that point? Yeah. I remember it was a 20 million. We needed $20 million to buy it. We had already gotten a buyer from Walmart and Target who had agreed to purchase it from us at the retail price. Really? So they weren't even going to make any profit on it. They were planned. It was such a hot item that they wanted to use it as what they call a loss leader. Sure. Where they have an item that is really in demand. And even though they're losing money on it, people will come in to the store and buy something else.

because they are attracted to go buy an Xbox. So while they're buying an Xbox, they'll buy some accessories or a game or something. And so Walmart will make money like that. And so they were willing to buy it from us at the full retail price. And the distributor was willing to sell it to us, I believe, somewhere along the lines of around 60 or 70% of the retail price. So we stood to make like a good six or $8 million on this. If we could pull together $20 million. Wow.

And we tried. I mean, we worked for like a good solid week and a half, two weeks, looking, you know, pretty much asking everyone to invest in us. And we even got some meetings with some like hedge funds in New York. And it just didn't pass the smell test. It was what they said. Right. They declined it because even though like all the, you know, the suppliers were willing to do a letter of credit, which meant that, you know, they wouldn't get paid until they actually delivered the goods. So it wasn't like it was going to be a total scam because we'd be able to inspect the merchant.

dice before the funds were released. So the payment process was solid, but the hedge fund guys said, it just didn't pass the smell test, which I totally understand. It doesn't even pass the smell test for me these days. So eventually that ended up falling apart and nothing happened with that, at least not with us. Yeah, the hedge fund guys are probably like, this is a great opportunity that shouldn't exist. Something is wrong. We can't put our finger on it. We don't really want to be in a position where the feds are seizing the profits or the money that we spent on the, or the devices themselves when they hit customs, because it turns out these are Y boxes and they're made with all the same parts and they run the games, but they're not really licensed. Yeah. Yeah, exactly. I love this

story because it really does paint you guys as very savvy. Well, thank you. But also, like, really focused on money. And I know Ephraim was obsessed with money. You mentioned there's this casual anecdote where he's talking with federal contractors while he's having sex with his girlfriend. which is gross and weird, but like this is what gets him off, not the girl. It's like, he's like, I'm negotiating. Yeah, yeah, yeah. He would brag about this to us, actually. That's the only reason I even know about it.

I mean, I'm not there looking. Yeah. But he would brag. He's like, yeah. So I was like, you know, banging my girlfriend. And then I got a, you know, call from the contracting officer. And I told her, hey, baby, you keep on doing what you're doing. I got to take this call.

Of course, she hates it. But she knows where her bread is buttered on, you know. He was so gross. Yeah. It's so gross. It is so gross, but it paints a picture of just like exactly the type of guy that you expect him to be once you actually find out what this guy's like. Yeah. And you guys must have had Nick Cage posters all over the office. Lord of War was definitely Ephraim's, who was his favorite movie by far. He thought it was the coolest movie ever.

Sure. And for his birthday, actually, I bought him one of the famous Lord of War posters, which is a picture of Nick Cage's face that's made out of bullets. and he loved it so much he put it like right behind his desk like uh you know like so when people would come into his office they would see like the big nick cage poster right right behind him above his desk yeah he just didn't know how to have his own poster made with his own face made out of bullets that's what he was really wanted for sure i'm surprised he didn't take some of the actual ammo you guys got in trouble for selling and have a sculpture made of himself made out of bullets that's what i would have done if i was a gaudy arms dealer in fact i'm thinking about doing it now

It's really good behind me. Just saying. He actually, I saw later. I mean, this was later, not during the time, but he did commission some artist to make a portrait of him. It's like a starter pack for narcissists. Like, you need a sculpture and or a painting of yourself in your office that's you looking at the people, like everyone dominating them really high up on the wall too, not either.

Exactly. The morality of some of these deals. I'm wondering if this got to you at all because there's one where I think it was the king of Nepal wanted to buy weapons because there was an uprising and it was like, Let's sell this guy weapons to kill a bunch of his own citizens. And then it's like, well, do we want to do that? That was really early on when I started working with him, you know, like a few weeks into it. That one really threw me off.

I mean, so what happened was after the whole Xbox thing fell through, he said, hey, you know, let's get back to business that I know, that I know we can make money on. You know, let's do the government contracting business. I'll teach you how to do it. you'll go for items that I'm not really focusing on so that we could expand the business and we'll split the profit 50-50. You know, you'll do all the work. I'll provide the money. I'll do the negotiation. We'll use my company's licenses and all that. And we'll split it 50-50. And so I said, that's great. And he's like, well, you know, I mainly focus on military equipment and munitions and

weapons. But I know there's, you know, energy is a huge sector for the government. They buy massive amounts of oil and gas and various energy commodities. And so why don't you focus on that? So I started doing that. Actually, the first contract I won with the federal government was for 50,000 gallons of propane. It was with the U.S. Air Force. I delivered it to a U.S. Air Force base in Wyoming. I won that within, I think, the first month of starting, made $8,000 for myself, not so bad for a first contract. And while that was happening, I, you know, I was working in the office with in, well, his apartment, we were using his apartment as an office. Hashtag startup life, yeah, exactly.

Yeah, for real. He had this big desk in the middle of his living room, and it was just covered in, like, stacks of papers because he loved printing things out. So, like, whenever we'd get a contract, you'd print out the entire contract, and that's usually, like, between 30 and 50 pages with all the addendums and everything. Oh, wow. And he was working on so many different things at the same time. It just, like, became this huge mess.

So, you know, I was working at it, you know, in his apartment. and obviously hear what he's talking about on the phone. And he started working on, he got through one of his contacts in the industry, someone who wanted to supply the king of Nepal. And, you know, we looked up what was happening with Nepal, and it turns out there were all these pro-democracy protests

happening in the country. And so the king wanted to buy, like, attack helicopters and heavy machine guns and, like a large amount of them and various crowd control equipment. And Ephraim was like, yeah, let's do this, you know, we'll put together a save the king package. He was talking to his contact on the phone. And I told him, I'm like, Ephraim, you know, that's like, first of all,

are you sure that's like legal? Yeah, it doesn't sound legal. Yeah. You know, because that's like I'm pretty sure the U.S. government wouldn't be happy with you supplying a monarch in order to suppress a pro-democracy government. Are you sure that's legal? And it's kind of fucked up, even if it is legal. Yeah.

And he's like, looks at me and he's like, just worry about your fuel contracts, bro. Okay, you leave this shit to me. Cool. I'll just be your accomplice because I'm also going to get in trouble for this since I'm right next to you. But okay. Yeah. So I was like, wow, you know, that's like, that's very concerning, you know.

Like, I mean, I wasn't working on it with him. And so I guess that's what I told myself at the time. I'm like, well, I mean, he's doing it, not me. You know, I'm working on fuel contracts. And so that's how I made, you know, I excused it to myself, but it was extremely disturbing. And luckily, that whole thing fell through. I think the king managed to negotiate something. So the contract got canceled and he didn't end up buying all those things.

Wow. So you're dealing with other arms dealers in other regions who are thinking like, oh, okay, well, where do I get attack helicopters? And I can't buy them from the U.S. government. Let's buy them from somebody who buys them from a supply. It just seems like there's 16 brokers. between you and the end user for some of these deals. For some of the deals.

Yeah, I mean, because there's, so there's different ways that the arms business works. There's obviously the factories that manufacture these things in the first place. And that is usually the most expensive way to buy things. You know, you buy something brand new. Sure. But because all the militaries in the world tend to stock up on military equipment and in the best of times, they don't get used. and sometimes countries' priorities shift,

and then they try to change their military equipment or something gets a little bit too old for their liking, and they try to sell it to get rid of it. And there's other countries that are totally okay with buying a little bit older equipment as long as they get a good discount. So there's a large opportunity for brokers to do these kinds of deals.

And that really all comes down to who you know and who you have connections with. because there isn't no like worldwide database of all the military equipment that every country owns and, you know, that's available. You know, there's no Amazon of military equipment. Maybe now that I said that someone's going to create that. Yeah, I was going to say, great idea. Yeah, yeah. So it really comes down to the kind of connections you have.

And a lot of countries, especially countries that are not first world transparent democracies, they are run on systems of patronage and corruption. And so you need some sort of personal connection with the government or with the powers in that country in order to do these kinds of deals. And if you don't have that connection, you need to find someone who does. So that's where all these middlemen come in because it's like, I know a guy who knows a guy who knows a guy, you know, and everyone gets their cut along the line, including the crooked politician or military offense. who is making, you know, this deal happen. Right. So you've got the supplier has to sell it to you and then go through the chain to get to the buyer.

And each person along the way is probably like, well, I've got to make a little 10% margin here. Yeah. So it's inflated crazily by the time it gets there, but it still has to be somewhat competitive or you have to bribe the guy more than the other company does or whatever it is. Yeah. So it depends on the specific situation. So the more desperate the buyer is, the higher price they're willing to pay.

So if there's an emergency situation and it's a matter of life or death, they're willing to pay pretty much anything because what's good money for them if they're dead? Now, if they are not in a rush and then price becomes more of an issue and then they can shop around a bit more. So it really depends on. But sometimes the buyer is corrupt themselves and they don't want to, you know, they don't really care how much money they're spending as long as they can pocket some of that money as well. So there are different situations in these kinds of deals that can inflate or deflate the price.

Interesting. Okay. Well, in the movie, Bradley Cooper plays this guy. It's the name's like Heinrich. Is it Heinrich Tomei? Heinrich Tomei. We called him Henry. Henry, yeah. He's a Swiss arms dealer. But who is this guy? Because he seems like the kind of guy who goes, I don't care what the weapons are for, right? He's, I don't want to say your mentor, but certainly a good comment. contact for you guys. So Henry was, is probably, definitely the most successful arms dealer we ever met. He'd been in the business since he was 18 years old. But he was in his, at the time, we knew him in his 40s, I guess. Now he's probably in his 50s, maybe even 60s at this point. Ephra met Henry through Ralph. In the movie, Ralph is this Jewish laundromat over. Okay.

Who is the investor, right? But in real life, Ralph is a real person. He really was our investor. but he was actually a Mormon who owned a machine gun factory in Utah. Okay. So a very different kind of character. Yeah, different kind of. Yeah. They really changed him in the movie. But they kept the name the same, which was, you know, Ephraim, Ralph actually through his dad.

His dad was doing government contracting, but for non-web for like non-lethal stuff for like boots and clothing and, you know, normal commodities like that. And I don't know how Michael, Ephraim's dad met Ralph, I think through one of those deals. But when Ephraim won his first federal contract, he was looking for an investor. Because remember, as I said, you need to put up the money yourself before the government pays you 30 days after you deliver. So Ephraim was looking for an investor and his dad introduced him to Ralph. Ralph funded his first deal and they made money and Ralph was thrilled. and so he agreed to continue funding his deals.

So they did a whole bunch of deals together. And Ralph had known Henry since I think the 90s. They had done a deal where Henry, it was, I believe, illegal to purchase at the time, like weapons from like apartheid South Africa. Yeah. So Henry found a way around that by taking the guns apart and selling all the parts, I think, except the receiver, which was the only. part that was legally considered a gun by the United States. And so he sold all the parts to Ralph.

And Ralph put him back together in his machine gun factory and just manufactured the missing part. Oh, wow. And so he made a huge amount of money through that deal. It was all legal, of course, you know, because they managed to find that loophole. So that's how they established their relationship. And when Ephraim and Ralph started doing business together, Ralph introduced him to Henry. And Henry is a Swiss, as you mentioned, a Swiss arms dealer. So he had connections all over Europe. He was especially strong in the Balkans. He had personal connections with a lot of the power players in the Balkans. And so he was able to get Ephraim very, very good deals on a lot of the weapons and ammunition that he was purchasing for the U.S. Army in Iraq and Afghanistan.

Later on, we found out that Henry, it came out in the papers that Henry had been the subject of an amnesty international report. Never a good thing. Yeah, never a good thing. Exactly. They suspected him of supplying some warlords in Africa, but I don't know if it was ever, I don't believe it was ever definitively proven. He was just placed on a watch list of, you know, guys to be concerned about, not necessarily a ban. list. So as far as I'm aware, it was still legal for us to do business with him. I see. Maybe not ethical, but legal. So in the movie, Bradley Cooper plays him like a badass, you know, like he's yelling, he's screaming. He's like, you know, has a hooker in his room, you know, like, you know, he's like,

he really played him like a badass. But in real life, Henry was more, he had more of the personality of like a Swiss banker. He's always dressed in a really nice suit, perfectly brushed hair, very calm voice, never raised his voice, never got excited. It was like he was selling potatoes. He was, you know, there was nothing to get excited. He was just, you know, doing a regular, boring job. And he was very professional. And I guess that's probably why he lasted so long. And he's still in business. He's still out there doing deals. I've heard last I heard he had some billion dollar contract with the Russian military to like refurbish their Air Force. There's some parts of their Air Force.

This was years ago. This was before the Russian War. So I don't know what he's doing now and what his, like I've lost contact with him. We're not besties anymore. Got it. Yeah. Does no longer follow us on TikTok. This is the Jordan Harbinger show with our guest, David Packow.

We'll be right back. If you like this episode of the show, I invite you to do what other smart and considerate listeners do, which is take a moment and support our amazing sponsors. All the deals, discount codes, and ways to support the show are at Jordan Harbinger.com slash deals. You can also always search for any sponsor using the AI chatbot on the website at Jordan Harbinger.com slash AI. Thanks so much for supporting those who support the show. Now, for the rest of Part 1 with David Packhouse. That sort of answers the question of why he needs you guys at this point, because if he's on a watch list, he might be like, well, I don't really want to pop my head up for all these little deals.

Maybe I'll let these kids go do some legwork, and then I'll just. give him good pricing and skim off the top until the heat dies. Yeah, that's probably what it was. I also don't believe that he was registered with the U.S. government, probably for that reason. But, you know, as I mentioned before, it's not enough just to be registered. You also have to build up a certain amount of past performance history in order to be eligible for the very large contracts. And I think I could imagine the reasons as, you know, are similar to what you were saying.

but he never stated his reasons for not bidding directly with the federal government. We just kind of assumed he wanted to keep his head low. He was supplying not just us, but he was supplying a few other contractors who were supplying the U.S. government. So he was the source for quite a few U.S. government contractors. Tell me about the Afghanistan contract. This is the big one that eventually, you know, spoiler alert gets you guys in big trouble. But why is Afghanistan buying anything from you instead of buying,

directly from the U.S. or Russia, for that matter, or even like South Korea, they make a bunch of arms. Why do a deal with you, Yutzus? No offense. Right. None take it. None taken. So the Afghans were not buying directly from us. They were being supplied by the U.S. Army. So the way, what happened was after the United States invaded Afghanistan and Iraq and pretty much bombed, you know, the people in power to smithereens, they decided that the best way forward was to attempt to build a democracy in that country, a democratic government that was friendly to the West. In Afghanistan famously failed, right, after 20 years of trying.

Yeah. Iraq is, you know, teetering on democracy, but, you know, is still, I guess, an official democracy at this point. Yeah, not a shining example. Yeah, not the best. Yeah. Not doing that great. But part of the rebuilding process, the reconstruction process, was building these institutions.

The idea was that the United States would eventually leave. The United States doesn't have any policy of staying and taking, you know, there was no idea of annexing Iraq or annexing Afghanistan and making it the 51st and 52nd state of the United States, like what Russia is trying to do with Ukraine. That wasn't the plan. The plan was to go and take out this unfriendly government and do a regime change to put in a friendly government.

So part of that is in order for the friendly government to stay in power is they needed to have a police force and a military and to fight the insurgents and their neighbors if they would attack them. And because the Afghans and the Iraqis were already trained on the Warsaw Pact weapons, as we mentioned before, the United States decided to supply them with those kind of weaponry. They were already trained on it. It also happened to be like five times cheaper. So that was a bonus. But the United States doesn't manufacture these weapons. So the United States manufactures weapons of NATO caliber, NATO standards. So to get a large quantity of Warsaw packed weapons and ammunition, they had to go to someone else.

And originally, they had to go to, speaking about the Afghan contract that we won specifically, the idea there, that was put out in 2006, George Bush was president. And the Bush administration felt that the next president was, because he was extremely unpopular at the time. His full numbers were terrible. So they thought, you know, there's a good chance that the next president is going to be a Democrat. They were right. Obama was the next president. But they thought the next president was going to pull out of Afghanistan immediately and leave them to their own devices, which he was wrong. It took until Biden to do that. But the plan was, was because they thought the next president would abandon Afghanistan, they wanted to arm the

Afghanis to have enough weapons and ammunition for like the next 30 years. And so they were looking to buy massive, massive quantities of munitions in particular, because munitions is something that's, you know, you eat it up, right? You know, just like the, we see in Ukraine. They're consumables. That's the term I was looking for. So because of that, they wanted to have massive quantities of munitions. And originally, they actually went, the U.S. Army went to the Russians directly and asked them to supply this massive quantity of munitions. This came out in some news article I read later, but like the Russians originally thought

that they were joking because the quantities were so enormous. But the U.S. Army had to ask them multiple times and they said, no, no, no, we're actually serious. We really want to buy this quantity. And the Russians said, sure, and they gave them a price. And then before they could finalize the deal, it came out that the Russians were supplying nuclear technology to the Iranians. And the United States got very upset about that and put the Russians on a blacklist, which made it illegal for the U.S. Army to buy this ammunition, these munitions from the Russians. And so then they had to start looking for other sources of supply.

And there was no other single source of supply that could supply this quantity. Only the Russians could do it. So they figured instead of dealing with 50 different suppliers, you know, from every former Soviet block country out there and having to deal with every headache that that entails, they're going to open it up for a broker-type contract. And they put it out in their usual contracting procedures. They put the list. I think it was 30-something different types of munitions with massive quantities of each.

And they said, give us a package deal. And we bid on that contract. we didn't really think we were going to win. Right, I was going to say, like, how did you even think you would win something like this? Yeah, we didn't really expect to win, but because it was all the kinds of munitions that we had already been selling to Iraq and Afghanistan, we technically qualified. We technically qualified because we had the past performance history. So because there was a technical, we weren't automatically disqualified. We felt, well, in that case, we have to at least give it a shot.

Right. Give it a shot. Even though it's like 20 times bigger than that. than anything you guys had done in the past. Exactly. Literally 20 times bigger, yes. Wow. This is what makes you guys successful at the end of the day, right? It's like most people would go, okay, Lockheed Martin's probably bidding on this, General Dynamics is bidding on this, Raytheon or whatever bidding on this, the government of Uzbekistan is bidding on this.

Why would, I'm not even going to fill out this PDF. Right. And you guys are like, now let's do it. Yeah. It was a lot of work, actually. It wasn't just filling out a PDF. No, of course not. But even if it was filling out a PDF, most people would go to hell with this. This is a waste of digital ink. Right, right. How do you decide what to bid? Because you have to choose the pricing.

Yeah. It's very complex. Then you've got to choose a margin. How do you even come up with the price tag for this? So the way we did that, well, first what we did was we got a price from everybody we could find. Sure, yeah. So Evram obviously asked all his suppliers for their best pricing on all these items.

and then he tasked me, and this was my role in the contract, to find new suppliers that he was not aware of, that he had not dealt with before. And so I scoured the internet. I must have gone 50 pages deep into Google searches. I'm not even kidding. And I built these massive spreadsheets of every supplier, and like half of them weren't even in business anymore. The other half didn't speak English. It was a massive, like they were all only, they were all in, in,

Eastern Europe, so I had to do this all late at night. Four o'clock in the way. Exactly. You know, a lot of them all wouldn't, didn't have emails. They only had fax numbers. And so it was a massive, massive pain. It was a very grinding, time consuming pain. But after a few months of work, you know, I was able to find suppliers that filled in the

holes of where effort suppliers were missing. And we had a, what we thought was a pretty competitive bid. Also, Henry gave us a really good deal on the AK-47 ammo, which was a big component of the contract. And that would later get us in trouble because we later found out why that ammo was so cheap, but we didn't know it at the time. So after we got all the suppliers in the spreadsheet, and we also had to calculate what the estimated logistics costs, because the government wants you to give them a delivered price, not a cost plus shipping price. Right. Yeah.

Shipping is always included to the government. Like prime. Amazon Prime. Exactly. Shipping has to be included. So once we calculated the estimated shipping costs for each supplier and we called up the suppliers like five. Ephraim would do this. He was very good at this.

He would call them up like five times and just bother them until they agreed to like lower their price even a tiny bit. He'd like just like keep them like pestering them until they would like, you know, and come up with all these crazy reasons. why they need to give him a better price. He was very good at this. He loved to say one of his lines was he'd love to say a negotiation is a contest between two people over who could come up with a better reason for things to go their way. Meanwhile, all these other guys are like whatever.

But yeah, he's probably also not afraid to say, like, if you do this, there's all these other deals that are lined up, and it's just BS. Yeah, he was the master of BS. I mean, he would promise people the world. He would say things in ways that you could take it in the way. two ways, so he'd have a way to get himself out of it if you would call him out on it later. He was a master manipulator, a master liar. He was extremely, extremely talented at it. And that made him a very, very powerful, very capable negotiator. And so he got all the suppliers

to knock down their prices as low as they were willing to do. And then we had our price. And then it was time for us to put our margin, what we wanted to make on it before we bid it to the government. And Ephraim figured he was torn because he figured everyone else was going to do 10%. That's what he thought. So he figured he would do 9%. But then he started thinking for it to himself, but wait a second, what if someone else had the same thought that I had, you know, that everyone else is doing 10%, so I'll do 9%. So then in that case, we need to do 8%. So he was like, but nobody's going to think that. So we don't have to do 7%. So it's really just 8% or 9% depending on which level of, you know, the other people are thinking. So he was torn. He's like, should we do

8%, 9%, 8%, 9%. And he dawdled until it was like literally like half an hour before like the deadline. We actually, this was one of the few contracts we had to submit in paper. Most contracts you just submit as a PDF online. But for so, I don't know why. Maybe you post it. It is a PDF. I was right. Yeah. No, it's actually a combination of PDF and spreadsheets. But yeah, you are correct. PDF and Excel spreadsheet. So we had a deadline and we had to actually ship it overnight from the post office. The post office was going to close in like 30 minutes and he still hadn't decided on whether to do 8% or 9%. And I told him Ephraim, just pick something.

It could be anything. We're going to for sure lose if you keep on not deciding. And he's like, fine, fine, fine. I can't leave money on the table. So let's do 9%. So we finally, we punched that into the spirit. spreadsheets, we printed everything out. The printer, like, broke halfway through that call.

We had to, like, change the printing, you know, the ink cartridges. It was, like, well, like, the time is ticking. We finally left the office at, like, 10 minutes before 5 p.m. when the post office was going to close. Ephraim, you know, is, like, driving at, like, 70 miles an hour down, like, a suburban local roads, you know, where, like, the speed limit is, like, 25 miles an hour. He's, like, driving, like, a maniac. We, like, skid to a stop in the parking.

and glad it from the post office, run, run, run, run. They were about to lock the doors, and he, like, busts past the guy and, like, knocks the postal worker to the side, and he's like, oh, I got to do this, I got to do this. And, like, they almost didn't take it because he was just such a dick. Yeah. But they're like, fine, fine, fine, we'll take it, we'll take it. Oh my God. They did it, yeah.

I got a friend like this named Ofer from middle school all the way through college, and he'd be working on something all night, zero sleep that's due at 8 o'clock in the morning after procrastinating for like a month until four o'clock that morning. Yeah. And he'd be on the phone with his mom and he's pacing and he's so nervous. And I'm like, just start the thing. What are you doing? It's 3 a.m. We're all like drunk and everything and he's just like, I got a bunch of work to do. And the amount of stress at these guys, the types of these types of guys live in. Right. And tell me what you think. It's horrible to even be around it because it's so contagious. And you're just sitting there like, get away from me. You're freaking me out.

It's extremely stressful because they're stressed like it, you know, bleeds onto you. Yeah. Because they're stressed and you're stressed. And, you know, I mean, I put a lot of work into that contract. I spent like a good like two months of sleepless nights scouring the internet and talking to people, you know, from Eastern Europe and sending faxes and all these things. And then he was going to blow it because he couldn't decide on whether it was eight or nine percent and couldn't make a decision in time.

So I was extremely stressed that he was just going to make us lose before we even got a chance to run the race, so to speak. Yeah, no kidding. Yeah. But, you know, he drove fast enough down those roads and didn't hit any child on the way. So we made it. How do you then plan to get the weapons into Afghanistan? Are you going to, like, drive from Pakistan? That seems a little dodgy.

It's a war zone. So we considered all these different ways. So Afghanistan's a landlocked. country. So the only way was either air, which was extremely expensive because, you know, flying things by air, it was, I think, something like five times the price. Of course, yeah. Then by ocean. Or the only other option was overland. But to do that, we would either need to go through Pakistan, which was an extremely unstable country, still is, or overland through the Central Asian countries. And for that, we had to transverse through Russia as well.

And they didn't really want us to do that. The Russians were apparently were very upset to have been cut out of this contract. And we found that later that they were doing all sorts of maneuvers to try to make us fail to deliver because they thought that if we fail to deliver that the U.S. Army would come running back to them and beg them to buy the ammo despite the blacklisting. They try to convince the Central Asian countries who are still very much in their orbit to refuse to give us overflight permits when we decided to fly it in. Oh, wow.

Yeah, yeah, they really tried to make us fail. So we didn't want to take the chance of going through Pakistan because we were told that it's high likelihood that some warlord is just going to seize the shipment. Sure. Then you're fucked. And then you supply a warlord with all this ammo, which is not a good thing. Right.

Somehow you get in trouble for that. Yeah. It wasn't your fault. Right. Yeah. Or just Iran takes out the whole. convoy with a drone or something or a militia. We realized that the only safe way to do this was by air.

And even though it was extremely expensive and we would have made a huge amount more money if we had done it over land, but at least it's going to get there and we'll make something instead of nothing. So it was really, it felt like our only option, really. But of course, it's extremely expensive to ship everything with air freight. It all depends on the price of oil because that's the vast majority. I think something like 80% of the cost of air freight is the fuel. So at the time, we won the contract in early 2007, there was a huge spike in oil prices.

And a large responsible company would have bought like a hedge their bets, bought an oil hedge so that in case this happened, it was kind of like insurance. You would get paid for the oil price going up and you would use that to cover your losses on the increase of the air freight. Of course, that wasn't Ephraim's style. He didn't like buying insurance, so he didn't. And then we kind of got stuck in a situation where the price of oil meant that we couldn't deliver a lot of the ammo that we had promised to deliver profitably. We would have been losing money on it, especially the AK-47 ammo, which Henry was supplying us. So we thought, well, how can we solve this? And I realized that the AK-47 ammo that Henry R.R.

offered us was packed in these very heavy wooden crates. And if we could just remove the wooden crates, then maybe we can save a bunch of weight and at least make it, you know, I don't know if it'll be completely profitable, but at least it'll be, we won't lose as much money. Right. Okay. But we have no idea how much those crates weighed. So we sent one of my best friends, Alex, Alex Padrinsky, to Albania to go weigh the crates because we didn't trust the Albanians to give us accurate information. Sure. Yeah. In the movie, I go to Albania because they didn't want to add another character in the film. But I was already dealing with the U.S. government contracting officers here.

And I was dealing with all the other aspects of the contract, the Bulgarians, and looking for other sources of supply like from Kazakhstan and Ukraine. And I didn't have time to do this job. So we sent my friend Alex to do that. He gets there and he weighs the crate. And it turns out to weigh quite a lot. And by getting rid of the crates, we would make it actually profitable instead of losing money. But while he was inspecting it, he said, hey, you know, these crates, they have like all sorts of Chinese markings on them.

You know this ammo is from China, right? And we're like, what are you talking about? It's from Albania. And he's like, no, no, no. It's got Chinese all over it. It's definitely Chinese. And we're like, fuck, we didn't know that because our contract specifically. said, no Chinese ammunition can be delivered under this contract because in 1989, there was the Tiananmen Square

massacre in China, where the Chinese military suppressed this pro-democracy movement of these university students and killed hundreds, if not thousands of students. And so as a punishment for the Chinese military doing that, the United States put them on an arms embargo. And so it's illegal for U.S. companies and citizens to purchase or sell military equipment with the Chinese. So the U.S. Army put no Chinese ammunition can be supplied either directly or indirectly, was the actual wording in the contract. Yikes. So we realized, well, this kind of violates our contract.

We can't, according to our contract, we cannot deliver this. But we realized this ammunition is actually from the 70s. So before the massacre. So like, I should fall through this. loophole in the contract. Legally, if you bought ammunition or an AK-47 or anything while it was legal, you know, like let's say 1988, right? And you bought it and you import into the United States legally.

Even in 1990, after you can't deal with the Chinese anymore, you can still sell that weapon, you still own that weapon legally and sell it to whoever you want. That, you know, that's a legal weapon because you bought it legally. It's not like the embargo made all Chinese weapons everywhere. illegal, it was just illegal to do business with the Chinese, right? So technically, according to the embargo, this ammunition in Albania was legal. However, our contract didn't specify that. Our contract didn't say anything. It didn't say anything about the embargo. It didn't say you can only supply weapons that, you know, don't violate the embargo, right? That's what it should have said. But instead,

it said, no Chinese weapons directly or indirectly, period, full stop. Lazy drafting. Lazy contract. Exactly. So we thought, well, okay, we've got two options, right? We could either tell them about it. You know, say, hey, U.S. Army, you know, we're very sorry. We know our contract says no Chinese, but this stuff is, does not violate the embargo. Can we get a letter of exemption for this particular ammunition?

And they could have said, yeah, that makes sense. We were lazy in drafting the contract. So here's a letter of exemption. Go ahead. We really need the ammo, right? or they could have said something along the lines of, well, actually, you know, all your competitors were bidding with this clause in the requirements. So it's not fair. It's not fair to them that you can deliver this stuff because they weren't allowed to bid this. So, you know, just in the interest of fairness,

we're going to have to take this $300 million contract away from you and put it up for bid again. And we're like, do we want to take that risk? Or should we just not tell you? them about it. But what's Ephraim's style, right? What would Ephraim do? Yeah. Not the right thing. So Ephraim made the choice of let's not just tell them about it.

I mean, we were planning on repackaging it any way to save on the shipping weight. Let's just repackage it, continue repackaging it. Let's tell them that we repackaged it so we could inspect it to make sure it was good quality. Yeah, and save on freight costs. Not a lot. Technically the truth, right? It is.

We also took out all that Chinese documentation that way to bunch too. all those papers. And he made sure that the people that we got to repackage it removed every single shred of Chinese documentation or Chinese markings from anywhere. And that's what got us in trouble is that there are emails from him saying, oh, make sure that you remove all the Chinese documentation.

Smoking gun, no pun intended. Yeah, for real. For real. It's the emails that always get you. You're about to hear a preview of the Jordan Harbinger show with the world's best counterfeiter. How long does it take to print $250 million? Five months.

It needs to be worthwhile. It's going to need to be perfect because perfect, go big. One day, for no particular reason, I was driving and thinking I stopped at a red light. It just hit me out of nowhere. You know, I'm chasing something to make money from, sell something, make something, do something. All we do is to translate that into money. So we wake up in the morning to do that. I need to do something for money.

Well, why don't I just literally make money? $1 million in $20 bills is about 50 kilos. So $250 million is $12,500 kilos or over eight Toyota Camrys or six Ford F-150s. That is multiple metric tons of cash. You must have been f-and-stoked, man, because you knew you were going to put $20 bills all over all of that and then just never work again. Yes.

When I did bring it in and then I slammed the door shut, I was confident enough that everything I did opt to that, I hadn't done any mistakes. So it was good to go. By design, there are people specifically looking for you all the time. This is all they do. If you get suspected, you know, in any way to say you're dumb, you can tell them whatever you want. They're not dummies.

I mean, this is as high as it goes. It's the stuff of the line. For more on how Frank Barrassa created a quarter billion in U.S. $20 bills that look and feel genuine to experts, check out episode 488 of the Jordan Harbinger show. All right, that's it for part one. All things David Packhouse are going to be in the show notes at Jordan Harbinger.com. You can also ask the AI chatbot. Part two coming up in just a few days, if it's not out already by the time you hear this. Transcripts are in the show notes, advertisers, deals and discount codes, all the ways to support the show

are all at Jordan Harbinger.com slash deals. I've said it once, but I'll say it again. Please consider supporting those who support the show. I'm at Jordan Harbinger on both Twitter and Instagram. You can also connect with me on LinkedIn. And the best things, by the way, that have happened in my life and business have come through my network. and I'm teaching you how to do the same thing for yourself in our six-minute networking course.

It's 100% free. It's not gross. It's not schmoozy. You can find it on the think-ific platform at Jordan Harbinger.com slash course. The drills take a few minutes a day. I wish I knew this stuff 20 years ago. I want you to dig the well before you get thirsty, build relationships before you need them, and be in smart company where you belong. You can find it all at Jordan Harbinger.com slash course. This show is created in association with Podcast One. My team is Jen Harbinger, Jace Sanderson, Robert Fogartie, Millie Ocampo, Ian Baird, and Gabriel Mizrahi. Remember, we rise by lifting others. The fee for this show is you share it with friends and you find something useful or interesting.

If you know somebody who would really be into this kind of show, this kind of episode, definitely share it with them. The greatest compliment you can give us is to share the show with those you care about. In the meantime, I hope you apply what you hear on the show so you can live what you learn, and we'll see you next time. This episode is sponsored in part by Something You Should Know podcast. Finding a new great podcast shouldn't be this hard, so let me save you some time. If you like the Jordan Harbinger show, you'll probably like something you should know with Mike Carruthers.

It's one of those shows that makes you smarter in a practical, useful way. Same curiosity vibe we go for here, just in a fast-focused format. Mike brings on top experts and asks the exact questions that you'd want to ask, and the topics are all over the place in the best way. Recently, they've covered things like why we care so much what other people think, the benefits of laughter, why sports fans get so invested, and what makes people like you or not. The through line is always the same. Smart ideas you can actually use in real life. Something you should know has been featured in Apple's shows we love, and it's got thousands of five-star reviews because it's consistently interesting.

So if you want another show that scratches that I want to understand how people in the world really work, itch, search for something you should know wherever you get your podcasts. Look for the bright yellow light bulb and start listening. You can thank me later.