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Congress is ramping up its inquiries into how a Miami-based defense contractor, under investigation for delivering faulty munitions to Afghan security forces, was awarded more than $300 million in federal contracts.

AEY Inc., owned by 22-year-old Efraim Diveroli, saw its business boom after being incorrectly labeled a "small disadvantaged business." That certification, which gives businesses preferential status in bidding for federal contracts, is largely reserved for economically disadvantaged racial minorities. Several federal sources, however, have confirmed on condition of anonymity that AEY never received or requested certification as a small disadvantaged business--leaving open the possibility that it was accidentally or fraudulently designated an SDB by the company's executives, a contracting officer within the government, or someone operating one of the numerous contracting databases.

Officials at the Small Business Administration's headquarters in Washington and at its South Florida district office said they have no record of the company or any of its owners or operators filing an application for the SDB program, nor do they have any documentation that AEY received certification.

"They are not an SDB or anything like that," said an official from the South Florida office who declined to be named. The SDB program focuses on helping socially and economically disadvantaged companies gain access to the federal marketplace, and only the SBA can decide applications for the designation.

AEY first came under scrutiny in March, when The New York Times reported that the company was supplying defective goods to Afghan security forces through an Army contract. An investigation into the company's background by Government Executive last month revealed the company's disadvantaged label and the millions of dollars in contracts that followed.

Congress reacted quickly to initial reports of AEY's botched contracts and to its questionable SDB status. The House Oversight and Government Reform Committee scheduled a hearing for April 17, and Sen. John Kerry, D-Mass., sent letters to the State and Defense departments and the agency requesting information on AEY's status as an SDB.

The House committee postponed its hearing on April 11. A committee aide said that negotiations and misunderstandings involving the panel and the company's executives and their attorneys caused the delay. "It appears that, upon advice of counsel, the proprietors of AEY signaled their intent to plead the 5th Amendment" protecting witnesses against self-incrimination, said the aide, who spoke about the case on background. "When informed that this would not extend to the documents that the committee requested, they signaled that they will respond to the committee's document request. With active investigations afoot, immunity would not be well received by the Justice Department or by the committee--either the majority or the minority."

The Senate Small Business and Entrepreneurship Committee is also still waiting for documents it requested.

AEY's designation as a small disadvantaged business appears to have given it a significant boost in the federal marketplace. Before the label appeared in the Federal Procurement Data System in mid-2006, AEY had done $8.14 million in business with the federal government. Since the SDB label was applied, the company has earned more than $204 million from federal contracts, and it has more business pending.

AEY was first designated as a small disadvantaged business on a State Department contract dated June 8, 2006, that called for the company to "provide ballistic combat vests for Pakistan." This contract, which was worth nearly $625,000, was awarded through "full and open competition after exclusion of sources," meaning the contract had been set aside for "small-business concerns."

For the first half of 2006, before the designation first appeared, AEY owed the government about $300,000 in de-allocations, which cover overpayments for services not yet performed. The company raked in $2.6 million in government contracts between June 8 and the end of 2006.

AEY was incorporated in 1999 by Michael Diveroli, Efraim's father, who operates another military and police supply company, Worldwide Tactical, which has also gotten government contracts. AEY did relatively little business until 2005, when Efraim, then 19, was named president. By the end of fiscal 2005, the company had received more than $7 million in federal contracts.

In January 2007, AEY signed its biggest contract to date--a Defense Department award, earned through open competition, to supply ammunition to Afghanistan's army and police forces. According to a March 27 report in The New York Times and to U.S. Army officers who inspected the shipments, much of the ammunition was manufactured in China in 1966. The obsolete and defective cartridges were shipped in poorly packed cardboard boxes that split open upon arrival, the officers said.

The Army had issued five orders for weapons under the contract and paid AEY more than $150 million. Although AEY will be allowed to provide ammunition already ordered, the remaining items anticipated on the contract, worth about $143 million, are on hold while the Army completes its investigation. The company is suspended from receiving further contracts.

An AEY spokeswoman declined to comment on any of the company's contracts or its procurement status.

It is unclear if AEY fraudulently designated itself as a small disadvantaged business on its application for the 2006 State Department contract, or if the government misidentified the company.

Paul Murphy, president of the Fairfax, Va.-based market research company Eagle Eye Publishers, said that companies are responsible for designating themselves as small and disadvantaged in the "representations and certifications" portion of contract bids and proposals.

"This information is supposed to be truthfully represented and matched against the Central Contractor [Registration]," Murphy said. The Central Contractor Registration is a federal database housing information on all potential government vendors. Misrepresentation would be "very easy," he said, adding that contracting officers often fail to confirm the status that companies claim on their proposals.

If federal contracting officers had checked the Central Contractor Registration at any point, they would have seen that AEY does not have a small disadvantaged business certification number and that the line for an entry date into the SDB program is blank.

Joe Hornyak, a partner in the government contracts group at law firm Holland & Knight, said that the small disadvantaged business program is essentially an "honor system" and that the burden is on contractors' competitors to police the system and catch companies that may be lying about their status.

Some procurement experts suggest that overburdened acquisition officers simply may not have bothered to check AEY's status, but other analysts say it's possible that the company was deliberately misidentified, perhaps by agency officials.

The federal government has statutory goals for the percentage of contract dollars going to small businesses and other subcategories. Scott Amey, general counsel for the Project on Government Oversight, a nonprofit government watchdog group in Washington, said that federal agencies are under increased pressure to meet these goals and could be willing to overlook--or outright lie--about a company's status. "Agencies have an incentive to miscode" this data, he said.

State Department officials believe that AEY's designation as a small disadvantaged business was a "coding error." Information on a company's disadvantaged status is entered automatically into the procurement database used by contracting officers, an official from State's Office of Acquisitions Management and Office of Small and Disadvantaged Business Utilization said. It would be impossible for a contracting officer to deliberately change a company's designation, the official continued, and one error would not have led to automatic mislabeling on future awards.

John Young, Defense undersecretary for acquisition, technology, and logistics, said that the Army is reviewing AEY's contracts.

The SDB status is one of the most difficult federal procurement preference categories to qualify for. Anyone, regardless of race, ethnicity, religion, or gender, can claim to have been subjected to disadvantage because of some personal characteristic, but applicants for SDB status must prove economic and social disadvantage by providing financial statements and narratives. One SDB expert said that many applications include as many as 1,000 pages of corroborating evidence of prejudice and that the Small Business Administration denies nine out of 10 applications.

Diveroli does not appear to be a member of one of the racial groups presumed to be disadvantaged under the statute. And he might have had trouble meeting the stringent economic criteria because of family connections. Diveroli's family owns a pair of military and police supply companies that have received millions in government contracts. Efraim's grandfather, Yoav Botach, is one of L.A.'s wealthiest property owners, and his uncle, celebrity rabbi Shmuley Boteach, wrote a 1999 best-seller and hosts a reality TV show and a satellite radio program.