Former financial analyst arrested for allegedly defrauding investors

JAMES ARTHUR MCDONALD, JR.

A former financial analyst who frequently appeared on CNBC was arrested for allegedly defrauding investors. 

According to the Department of Justice, James Arthur McDonald Jr., 52, has been considered a fugitive since November 2021, when he failed to appear before the United States Securities and Exchange Commission to testify on allegations that he defrauded investors. Prior to fleeing, McDonald deleted his phone and email accounts and told someone he planned to "vanish," according to court documents.

He was arrested Saturday at his home in Port Orchard, Washington. He will arrive in Los Angeles to face federal charges.

He is charged with one count of securities fraud, one count of wire fraud, three counts of investment adviser fraud, and two counts of engaging in monetary transactions in property derived from unlawful activity.

If convicted of all charges, McDonald would face a maximum sentence of 20 years in federal prison for each securities fraud and wire fraud count, up to 10 years in federal prison on the monetary transactions derived from unlawful activity count, and up to five years in federal prison on the investment adviser fraud count.

According to the indictment, McDonald was the CEO and chief investment officer of two companies: Hercules Investments LLC, based in downtown Los Angeles, and Index Strategy Advisors Inc. (ISA), based in Redondo Beach. He also frequently appeared as an analyst on CNBC.

According to court documents, in late 2020, McDonald lost tens of millions of dollars of Hercules client money after "adopting a risky short position that effectively bet against the health of the United States economy in the aftermath of the U.S. presidential election. 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, the DOJ said in a statement. 

In early 2021, McDonald solicited millions of dollars' worth of funds from investors, but allegedly misrepresented how the funds would be used and failed to disclose the massive losses Hercules sustained. 

As part of the capital raise, McDonald obtained $675,000 in investment funds from one victim group in March 2021. He allegedly used $174,610 from the fund at a Porche dealership. Approximately $109,512 was also transferred to the landlord of a home McDonald rented in Arcadia; and approximately $6,800 was spent on a website that sells designer menswear, according to court documents.

McDonald also allegedly falsely represented to clients that ISA, his other firm, was a registered investment adviser. He also allegedly sent ISA clients fake account statements.

A United States District judge found McDonald liable for a total of $3,810,346, which represented his net profits gained because of the alleged conduct.