CNBC Analyst Arrested on Federal Charges
After evading capture for more than two and a half years, federal authorities have apprehended former financial expert James Arthur McDonald Jr., who was wanted on fraud charges.
Deadline described McDonald as a “perennial presence as an analyst on CNBC shows over the years.”
However, the prominent commentator had been living off the grid since November 2021, when the initial fraud allegations surfaced, according to a news release from the U.S. Attorney’s Office for the Central District of California.
The former Arcadia, California, resident was arrested Saturday at a home in Port Orchard, Washington. He will eventually be extradited to California to face the charges.
McDonald had been summoned by the Securities and Exchange Commission to respond to fraud allegations, but the news release stated that at that time his phone and email accounts were deactivated, and he told at least one person he planned to “vanish.”
In January 2023, a federal grand jury 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 involving property derived from unlawful activity.
McDonald was the CEO and chief investment officer of Hercules Investments LLC and Index Strategy Advisors Inc.
In 2020, according to the release, he positioned clients’ investments to benefit from what he anticipated to be a post-pandemic stock market decline. Hercules clients lost between $30 million and $40 million. By the end of 2020, clients were disgruntled over their losses.
In 2021, McDonald began raising funds that, the release said, were spent on items such as a Porsche and designer clothes.
The SEC complaint alleged that in two separate schemes, “McDonald fraudulently raised approximately $5.1 million from about 23 investors and clients, misappropriating more than $1.5 million in investor money to fund his lavish lifestyle and making at least $1.4 million in Ponzi-like payments to investors.”
The complaint stated that in one scheme, $3.6 million was raised, but less than half was used for trading.
While sending investors false statements, “McDonald also used $1 million of … investor monies to fund his extravagant lifestyle, including purchasing luxury vehicles, paying rent on his luxury home, and hundreds of thousands of dollars on personal credit card charges, as well as to pay expenses associated with operating Hercules,” the complaint said.
In a second scheme, the complaint alleged, “McDonald falsely represented” that investor funds “would be used to expand Hercules’s business, but he lied about the firm’s financial condition and failed to disclose that he had promised Hercules clients that the firm would repay earlier losses they had incurred as a result of bad trades McDonald had made in the fall of 2020.”
“McDonald also lied to the Hercules client investors, telling them that their funds would be spent on Hercules business operations or be used to engage in securities trading,” the complaint said.
“In fact, McDonald commingled their funds with his personal assets, and used the money to make payments to clients and investors and pay personal expenses, including purchasing a Porsche,” the complaint added.
The news release noted that if McDonald is convicted on all charges, he could face a “statutory 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.”