The FBI apprehended James Arthur McDonald Jr., a former CNBC financial analyst suspected of scamming investors, on Saturday after nearly three years on the run. The 52-year-old was apprehended at a home in Port Orchard, Washington.
According to a statement released on Monday by the U.S. Attorney’s Office, Central District of California, McDonald is scheduled to testify before the Securities and Exchange Commission in November 2021 over allegations of investor fraud. He did not show up, though, and authorities have since labeled him a fugitive.
McDonald “appeared to have terminated his previous phone and email accounts and told one person that he planned to ‘vanish.'” “Since then, a federal grand jury in Los Angeles in January 2023 returned a seven-count indictment against McDonald,” according to the statement.
According to the indictment, the 52-year-old suspect was the CEO and CIO of two companies: Hercules Investments LLC (located in downtown Los Angeles) and Index Strategy Advisors Inc. (headquartered in Redondo Beach). According to the complaint, McDonald frequently appeared as an analyst on the CNBC financial television news network.
“In late 2020, McDonald 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,” said the statement.
“McDonald predicted that the COVID-19 outbreak and the election would trigger massive selloffs, causing the stock market to fall. When the market did not collapse, Hercules clients lost between $30 million and $40 million. By December 2020, Hercules clients were complaining to corporate workers about their account losses.
Prosecutors argued that McDonald’s compensation for financial advice services was based on a percentage of assets managed by Hercules, resulting in significant losses for Hercules.
McDonald, at that time, “solicited millions of dollars’ worth of funds from investors in the form of a purported capital raise for Hercules but allegedly misrepresented how the funds would be used and failed to disclose the massive losses Hercules previously sustained,” according to the statement.
The statement continued: “McDonald, an avid football fan, stated that he intended to launch a mutual fund under the ticker symbol ‘NFLHX.'” The losses incurred by Hercules clients, as well as the possibility of litigation over those losses, threatened the fund’s performance because any litigation would have had to be publicly publicized.
Prosecutors claimed that on March 9, 2021, McDonald received a $675,000 investment fund from one group. But he allegedly did not use the monies for their intended purposes, spending around $174,610 of them at a Porsche shop. According to police, he reportedly allegedly sent approximately $109,512 to the landlord of a property he was renting, as well as $6,800 to a designer clothing website.
“McDonald allegedly also 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,” added the statement.
“He also allegedly sent ISA clients false account statements, including for one client who invested approximately $351,000, later needed the money to make a down payment on a home, was informed by McDonald that much of the money had been lost, and never got his full investment back.”
The SEC filed a civil lawsuit against McDonald and Hercules in September 2022, alleging violations of federal securities laws, according to the release. “On April 21, United States District Judge Percy Anderson found McDonald liable for a total of approximately $3,810,346, which represented his net profits gained because of the alleged conduct,” said the authorities.
McDonald faces charges of securities fraud, wire fraud, investment adviser fraud, and engaging in monetary transactions with illegally obtained property.
He could face up to 35 years in prison if convicted. Authorities believe he will be extradited to Los Angeles in the coming weeks to face federal accusations.