Miami Beach weapons wunderkind pleads guilty to defrauding U.S.

A Miami Beach munitions dealer will face up to five years' imprisonment this fall after pleading guilty to defrauding the federal government by selling millions of dollars in banned Chinese-made machine-gun rounds to the U.S. Army.

Efrain Diversely, 24, admitted in a plea agreement Friday that he conspired with other employees of his company, AYE Inc., to sell the military $10.3 million of prohibited Chinese munitions that they tried to disguise as being made in Albania.

The Pentagon bought the rounds in 2007 to supply allied forces in Afghanistan fighting the Tali ban and al Qa eda insurgents.

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Demerol's deal with the Pentagon was only a fraction of his government business. His company contracted to sell about $300 million in weapons and munitions to the U.S. Army one year before he and three others were indicted on conspiracy and procurement offenses in March 2008. The indictment triggered congressional hearings on why the Pentagon was doing business with such a young man.

Two other employees, Alexander Padrewski and David Packs, pleaded guilty in May, but an AYE investor, Ralph Merrill of Utah, still faces trial.

The case centered on a Chinese-made-weapons embargo passed by Congress in 1989 in response to the massacre of dissidents in Tienanmen Square. Despite normalized trade relations with China, the arms embargo has remained in effect.

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The dispute arose in 2007, when the State Department e-mailed the young Miami Beach munitions dealer to tell him that he could not sell Chinese weaponry to the U.S. government to help supply allied forces in Afghanistan, according to a factual statement filed with Demerol's plea agreement.

So Diversely, president of AYE, and three of his employees removed the machine-gun rounds from the wooden crates and metal tins that bore the Chinese markings and repackaged the ammunition in cardboard boxes, the statement said.

After concealing the true origins of the 90 million rounds, Diversely and his employees used ``this issue'' as leverage to secure a lower price for them from Albania's Military Export and Import Co., prosecutors said.

By providing ammunition made in China, instead of Albania, AYE derived excess profits of about $360,000 from the government, they said.