A former California advisor and CNBC pundit who spent three years on the lam after he was accused of defrauding investors out of millions of dollars was arrested on Saturday at a residence in Port Orchard, Wash., according to the U.S. Attorney's Office for the Central District of California.
James Arthur McDonald Jr., 52, formerly of Arcadia, Calif., made an initial appearance in U.S. District Court in Tacoma, Wash., and will arrive in Los Angeles in the coming weeks to face federal charges, prosecutors said.
McDonald, the former CEO and chief investment officer of Los Angeles-based Hercules Investments LLC, and Redondo Beach, Calif.-based Index Strategy Advisors Inc. (ISA), had been considered a fugitive since at least November 2021, when he did not show up to testify before the Securities and Exchange Commission to answer to allegations that he had defrauded investors, prosecutors said. Before McDonald went into hiding, he “also appeared to have terminated his previous phone and email accounts and told one person that he planned to ‘vanish,’ prosecutors said.
He was criminally and civilly charged in September 2022 for defrauding 23 investors and clients out of more than $5.1 million and using more than $2.9 million of those funds for personal expenses and Ponzi-like payments to earlier investors.
In January 2023, a 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 in property derived from unlawful activity.
Prosecutors said in late 2020 that McDonald lost tens of millions of dollars of Hercules clients’ 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.” Prosecutors said his projection that the pandemic and the election “would result in major selloffs that would cause the stock market to drop” did not pan out, resuling in Hercules clients losing between $30 million and $40 million.
Also, in early 2021, prosecutors said, McDonald solicited millions more from clients “in the form of a purported capital raise,” but he allegedly lied about how the funds would be used and did not disclose Hercules’s previous losses.
As part of that bogus capital raise, prosecutors said, McDonald received $675,000 in investment funds from one “victim group” in March 2021 and used those funds for his personal benefit, including spending roughly $174,610 of them at a Porsche dealership; transferring about $109,512 to the landlord of a home he was renting in Arcadia; and spending about $6,800 on a website that sells designer menswear.
McDonald operated ISA from November 2010 to May 2019, and Hercules from September 2019 to December 2021, according to the SEC.
He faces 20 years in federal prison for each securities fraud and wire fraud count, up to 10 years on the monetary transactions derived from unlawful activity count, and up to five years on the investment adviser fraud count, prosecutors said.
The case is being investigated by the Federal Bureau of Investigations and the Internal Revenue Service Criminal Investigation.