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

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falsely represented to clients that ISA, his other firm, was a registered investment adviser, even though he had withdrawn ISA as a state-registered investment adviser firm in May 2019.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