A former CNBC analyst, James Arthur McDonald, 52, was arrested over the weekend after being charged with defrauding investors, federal prosecutors announced on Monday. McDonald, who was a frequent guest on CNBC and served as the CEO and chief investment officer of Hercules Investments LLC and Index Strategy Advisors Inc., found himself on the FBI’s Most Wanted list for white-collar crimes.
According to a federal grand jury indictment, McDonald allegedly lost tens of millions of dollars of client money at Hercules Investments after taking a high-risk short position that bet against the U.S. economy following the presidential election in late 2020. Justice Department officials reported that the anticipated market decline did not occur, resulting in client losses estimated between $30 and $40 million.
Prosecutors noted that McDonald’s earnings from Hercules Investments were primarily based on a percentage of the assets he managed, meaning the company’s losses from his short positions significantly reduced his fee income.
In early 2021, he allegedly solicited millions from investors under false pretenses, claiming he would launch a mutual fund while failing to disclose the substantial losses the firm incurred the previous year. He reportedly raised $675,000 from one group of investors, spending $174,610 at a Porsche dealership, over $100,000 on rent for his home, and nearly $7,000 on a website selling designer menswear.
McDonald also misrepresented clients’ information to Index Strategy Advisors, sending out false account statements that inflated clients’ account balances.
In late 2021, he became a fugitive after failing to appear before the United States Securities and Exchange Commission (SEC) in response to allegations of fraud. In September 2022, the SEC filed a civil complaint against him and Hercules Investments for violating federal securities laws, finding McDonald liable for over $3.8 million in illicit profits.
Reports indicate that McDonald had planned to “vanish,” as he closed his phone and email accounts. In January 2023, a federal grand jury in Los Angeles indicted him on several counts, including securities fraud, wire fraud, and investment adviser fraud.
He was arrested by the FBI at a residence in Port Orchard, Washington, and has since made his first appearance in the United States District Court in Tacoma. McDonald is expected to be transferred to Los Angeles to face federal charges in the coming weeks.
If convicted, he faces a maximum sentence of 20 years in federal prison for each count of securities fraud and wire fraud, up to 10 years for unlawful monetary transactions, and up to five years for investment adviser fraud.