CNBC Analyst Turned Fugitive Captured After Years on the Run

A former CEO and CNBC financial analyst was arrested on fraud charges in Washington state over the weekend after three years on the run, the U.S. Attorney's Office for the Central District of California announced Monday.

James Arthur McDonald Jr., 52, was arrested by the FBI in Port Orchard, Wash., on Saturday, and made his first court appearance in Tacoma, officials said. He is expected to be transferred to Los Angeles "in the coming weeks" to face federal charges there.

McDonald has been "considered a fugitive" since he failed to appear before the Securities and Exchange Commission in November 2021 to answer allegations he had defrauded investors. In January 2023, a grand jury in Los Angeles indicted McDonald on 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.

McDonald was the CEO and chief investment officer of both Hercules Investments LLC, based in Los Angeles, and Index Strategy Advisors Inc. (ISA), based in Redondo Beach, and made regular appearances as a financial analyst on CNBC.

In 2020, McDonald allegedly lost tens of millions of dollars invested by Hercules clients 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," according to the U.S. attorney's office. McDonald believed that the stock market would drop as a result of the Covid-19 pandemic and the results of the election.

When the market downturn failed to materialize, Hercules lost "between $30 million and $40 million" of client funds. Investors began complaining by December 2020.

In early 2021, McDonald allegedly began soliciting millions of dollars from investors purportedly to raise capital for Hercules, but misrepresented how the funds would be used, and failed to disclose the company's previous losses.

McDonald raised $675,000 in investment funds from one victim group on March 9, 2021, but allegedly misappropriated the funds. He allegedly spent roughly $174,610 at a Porsche dealership, approximately $109,512 on a home rental in Arcadia, and approximately $6,800 on a website that sells designer menswear, according to court documents.

At his other firm, ISA, McDonald allegedly falsely told clients the company was a registered investment adviser, though he had withdrawn ISA as a state-registered investment adviser firm back in 2019. He allegedly sent ISA clients false account statements, including for a client who had invested some $351,000. That client later asked for his money back to make a down payment on a house, and McDonald said the money had been lost.

If convicted on all charges, McDonald faces up to 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.

--with reporting by TMX

Tags

Fraud, Investors, FBI, Washington, Tacoma