Fugitive Ex-Advisor Who Appeared on CNBC Arrested on Fraud Charges

A former advisor and paid CNBC guest analyst who was charged with defrauding investors after losing over $30 million in client assets in a risky short position has been arrested after nearly three years as a fugitive, authorities said.

James Arthur McDonald Jr., 52, formerly of Arcadia, California, was arrested Saturday at a residence in Port Orchard, Washington, and made his initial appearance two days later in U.S. District Court in Tacoma.

He will arrive in Los Angeles in the coming weeks to face federal charges there, the U.S. attorney's office for California's central district announced Monday.

At his appearance in Tacoma, McDonald, whom the government considers a serious flight risk, waived a detention hearing and agreed to being detained while reserving the right to such a hearing in the California district where he's been charged, according to a court document.

McDonald had been considered a fugitive since at least November 2021, when he failed to appear before the U.S. Securities and Exchange Commission to testify after allegations arose that he had defrauded investors, the prosecutor's office said.

In September 2022, the SEC filed a civil complaint charging McDonald and one of his firms with violations of federal securities law, alleging he misappropriated millions in investor and client funds that he used on personal expenses and "Ponzi-like payments."

U.S. District Judge Percy Anderson has found McDonald liable for about $3.8 million in net profits gained from the alleged conduct, prosecutors said.

Before fleeing, McDonald appeared to have terminated his previous phone and email accounts and told one person that he planned to "vanish," the U.S. attorney's office said, citing court documents.

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 advisor fraud, and two counts of engaging in monetary transactions in property derived from unlawful activity.

If convicted of all charges, McDonald could face over 50 years in prison: a statutory maximum sentence of 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 advisor fraud count.

McDonald was the CEO and chief investment officer of two companies — Hercules Investments LLC, based in downtown Los Angeles, and Index Strategy Advisors Inc., based in Redondo Beach — and frequently appeared on the CNBC financial television network, according to prosecutors.

In late 2020, he lost tens of millions of dollars of Hercules client money after adopting a risky short position that effectively bet against the health of the U.S. economy after the presidential election, prosecutors allege.

McDonald projected that the COVID-19 pandemic and the election would result in major selloffs that would cause the stock market to drop. When that didn't happen, Hercules clients lost between $30 million and $40 million. By December 2020, Hercules clients were complaining to company employees about their account losses, according to prosecutors.

Since McDonald's compensation for his investment advisory services primarily was based on a percentage of assets under his management — typically 2% of a client's total assets held by Hercules — the massive losses to Hercules clients significantly decreased the fees McDonald could collect, prosecutors allege.

In early 2021, McDonald solicited millions of dollars from investors for a purported capital raise for Hercules but allegedly misrepresented how he would use the funds and failed to disclose the massive losses Hercules previously sustained, prosecutors allege.

McDonald, a football enthusiast, said he planned to launch a mutual fund under the ticker symbol "NFLHX." The losses to Hercules clients and the potential for litigation related to those losses jeopardized the success of that fund because any litigation would have had to be publicly disclosed, according to the U.S. attorney's office.

As part of the capital raise, McDonald obtained $675,000 in investment funds from one victim group on March 9, 2021, and allegedly misappropriated those funds in various ways, including spending roughly $174,610 at a Porsche dealership, prosecutors allege.

McDonald also allegedly transferred about $109,512 to the landlord of a home he was renting in Arcadia, and around $6,800 went to a website that sells designer menswear, according to the U.S. attorney's office, which cited court documents.

Prosecutors also allege McDonald falsely represented to clients that ISA, his other firm, was a registered investment adviser, even though he had withdrawn ISA as a state-registered investment adviser firm in May 2019.

He's also alleged to have sent ISA clients false account statements, including for one client who invested approximately $351,000. When the client later needed the money to make a down payment on a home, McDonald informed him that much of the money had been lost, authorities say.

The FBI and IRS Criminal Investigation are investigating this matter.

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