A former CNBC analyst who ended up on the FBI's Most Wanted list for white-collar crimes was arrested over the weekend after being charged with defrauding investors, federal prosecutors announced Monday.
James Arthur McDonald, 52, of California, was a frequent guest on CNBC and the CEO and chief investment officer of the companies Hercules Investments LLC and Index Strategy Advisors Inc.
According to an indictment from a federal grand jury, McDonald allegedly 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" in late 2020, Justice Department officials said in a news release. The predicted market decline did not happen, causing clients to lose between $30 and $40 million.
McDonald's compensation from Hercules Investments was primarily based on a percentage of assets he was managing, prosecutors said, meaning that the company's losses in the light of McDonald's short positions "significantly decreased the fees" he was able to collect.
In early 2021, McDonald allegedly solicited millions of dollars in funds from investors as part of a capital raise for Hercules Investments. He allegedly misrepresented how the funds would be used, telling investors he would launch a mutual fund, and failed to disclose the investment company's losses the previous year.
He allegedly raised $675,000 from one victim group. McDonald spent $174,610 of that at a Porsche dealership; more than $100,000 was transferred to the landlord of a home McDonald was renting; and nearly another $7,000 was spent on a website selling designer menswear, prosecutors said.
McDonald also allegedly falsely represented clients to Index Strategy Advisors, and sent clients there false account statements that misrepresented how much money was in their accounts.
McDonald became a fugitive in late 2021 when he failed to appear before the United States Securities and Exchange Commission, prosecutors said. McDonald had been called before the commission to testify in response to allegations he had defrauded investors.
In September 2022, the SEC filed a civil complaint charging McDonald and Hercules Investments with violating federal securities law. The filing found that McDonald was liable for $3,810,346 in net profits gained because of alleged misconduct. A federal arrest warrant was filed then, but McDonald remained on the run.
McDonald allegedly told one person he planned to "vanish," according to court documents, and closed out his phone and email accounts.
In January 2023, a federal grand jury in Los Angeles returned an indictment charging him 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.
Over the weekend, he was arrested by the FBI at a home in Port Orchard, Washington.
McDonald made his first appearance in the United States District Court in Tacoma, Washington, but will be brought 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 on the monetary transactions derived from unlawful activity count, and up to another five years for the count of investment advisor fraud.
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