Former CNBC financial analyst James Arthur McDonald Jr. has been arrested after allegedly evading custody for nearly three years.
The U.S. Attorney’s Office, Central District of California shared in a news release on Monday, June 17, stating that McDonald was arrested on Saturday at a home in Port Orchard, Wash., after he was accused of defrauding investors.
McDonald had originally been scheduled to testify in front of the United States Securities and Exchange Commission in November 2021 in connection with the allegations. However, he failed to appear before the commission and allegedly fled.
“Prior to fleeing, McDonald also appeared to have terminated his previous phone and email accounts and told one person that he planned to ‘vanish,’ according to court documents,” federal prosecutors said.
FBI
In January 2023, a federal grand jury in Los Angeles indicted McDonald— who prosecutors said “frequently appeared as an analyst on the CNBC financial television news network” — on charges including securities fraud, wire fraud and investment adviser fraud.
Federal prosecutors allege that McDonald — who had been CEO and chief investment officer of Hercules Investments LLC, based in Los Angeles — had lost “tens of millions of dollars” of the company’s client money in late 2020 after “adopting a risky short position” betting “against the health of the United States economy.”
“McDonald projected that the COVID-19 pandemic and the election would result in major selloffs that would cause the stock market to drop. When the market decline didn’t occur, Hercules clients lost between $30 million and $40 million,” federal prosecutors said.
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Federal prosecutors said that by December 2020, the firm’s clients began “complaining” about the losses in their accounts.
Prosecutors allege McDonald “failed to disclose the major losses” while soliciting “millions of dollars’ worth of funds” from investors in early 2021. Federal prosecutors said McDonald also “misrepresented how the funds would be used.”
FBI
Federal prosecutors allege McDonald received $675,000 in investment funds from one group in March, 2021, which he allegedly spent at a Porsche dealership, a designer menswear website and to pay off the rent for his home in Acadia.
Additional charges he faces relate to a second company in which he worked as CEO and chief investment officer called Index Strategy Advisors Inc. (ISA), based in Redondo Beach. Federal prosecutors allege McDonald “falsely claimed” to clients that the firm was a “registered investment adviser,” even though he had withdrawn the company from that designation in May 2019.
At least one client claimed that McDonald “sent false account statements” through this company. One person said he’d invested approximately $351,000 and had never gotten his investment back, according to federal prosecutors. That client claimed that McDonald told him that “much of the money had been lost.”
Federal prosecutors said that McDonald made his initial appearance in district court in Tacoma, Wash., on June 17 and would be extradited to Los Angeles over the next few weeks in order to face federal charges. It is unknown if McDonald has retained a lawyer.
If found guilty, McDonald could face up to 35 years in prison, federal prosecutors said.
