Senate lawmakers are calling for an investigation into a wealthy U.S. arms dealer who obtained nearly $300 million in federal contracts by claiming to be a small disadvantaged business.

AEY Inc., a Miami Beach, Fla.-based company that the Army accuses of having shipped outdated Chinese munitions to security forces in Afghanistan and Iraq, falsely used the set-aside designation to gain 50 contracts with the State and Defense Departments, according the Sen. John Kerry (D-Mass.).

Last week, the State Department suspended all export activities by AEY, which is already under criminal investigation. Efraim Diveroli, the firm's 22-year-old president, has also been accused of fraud for falsely certifying that the 40-year-old Chinese bullets his company provided Afghan troops were made last year in Hungary.

Kerry, the chairman of the Senate Committee on Small Business and Entrepreneurship, said reports showed AEY had never applied for the special designation, which is meant to give minority-owned firms and other disadvantaged businesses greater access to the federal procurement process.

In letters to Secretary of Defense Robert Gates and Secretary of State Condoleeza Rice, Kerry blasted the agencies for their lack of oversight. He also asked the Small Business Administration to turn over any documents pertaining to AEY, saying its inclusion as a small disadvantaged business undermined a key federal program created to "level the playing field" in government contracting.

"Faulty contracting procedures and deficient safeguards are no excuse for putting troops in Afghanistan and Iraq in greater danger," Kerry said in a statement. "The Bush Administration needs to explain how and why this mistake occurred not once, but 50 times," he said.