Former financial TV analyst arrested for fraud in Washington state after going on the run

A former CEO of two investment firms who was a television financial analyst on cable network programs and later became a fugitive after being accused of defrauding investors has been arrested, the bureau reported Monday of the United States Attorney.

James Arthur McDonald Jr., 52, was arrested last Saturday at a residence in the town of Port Orchard, Kitsap County, according to a news release from the U.S. Attorney's Office for the Central District of California.

McDonald appeared in U.S. District Court in Tacoma on Monday, CNBC reported. He was ordered held without bail Monday by a Tacoma judge, who ruled the defendant was a flight risk. McDonald agreed to be moved from Washington state to California within weeks to face federal charges.

McDonald had been considered a fugitive since at least November 2021, after failing to appear before the United States Securities and Exchange Commission (SEC) to testify following allegations that he defrauded investors. The agency said in its statement that McDonald appeared to have terminated his previous phone and email accounts and told one person he planned to “disappear.”

In January 2023, a federal grand jury in Los Angeles returned a seven-count indictment against McDonald, U.S. prosecutors said. He is accused of the following crimes:

• One count of securities fraud
• One count of electronic fraud
• Three counts of investment advisor fraud
• Two counts of making monetary transactions in property derived from illegal activities

Later in its statement, the agency added that on April 21, a judge found McDonald liable for a total of more than $3.8 million, which represented profits he earned from his conduct presumed.

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McDonald has frequently appeared as an analyst on CNBC, the cable news network that provides real-time business news, financial markets coverage and business content, his website says. In its coverage of McDonald's arrest, CNBC noted that he appeared as a “paid contributor” on the network. A 2022 affidavit from an FBI agent seeking McDonald's arrest acquired by CNBC states that McDonald “appeared on CNBC programs several times in late 2020 and into 2021…”

The statement from U.S. prosecutors said that if McDonald were convicted of all charges, he would face a statutory maximum sentence of 20 years in federal prison for each count of securities fraud and wire fraud, up to 10 years in federal prison for monetary transactions derived from illegal activity, and up to five years in federal prison for investment advisor fraud.

Looking at McDonald's in recent years

According to the indictment, McDonald was CEO and chief investment officer of two companies: Hercules Investments LLC, based in Los Angeles, and Index Strategy Advisors Inc. (ISA), based in Redondo Beach, California.

U.S. attorneys explained that McDonald's problems began in 2020, at the height of the COVID-19 pandemic, when it made risky investments and lost customers with a significant amount of money.

“In late 2020, McDonald's lost tens of millions of dollars of Hercules customer money after taking a risky short position that effectively bet against the health of the U.S. economy in the aftermath of the U.S. presidential election,” the statement said . “McDonald predicted that the COVID-19 pandemic and the election would lead to massive sell-offs that would cause the stock market to plummet. When the market decline did not occur, Hercules' customers lost between $30 million and $40 million. In December 2020, Hercules customers complained to the company's employees about losses on their accounts.

Since McDonald's compensation for its investment advisory services was primarily based on a percentage of the assets under its management, the losses suffered by Hercules' clients resulted in a significant decline in the fees McDonald's was entitled to charge, the agency explained.

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Then, in early 2021, after losing millions of dollars for its Hercules clients, McDonald solicited millions of dollars in funds from investors for Hercules, but allegedly misrepresented how the funds would be used and failed to disclose the losses massive attacks that Hercules had previously suffered.

McDonald – a big football fan – said he plans to launch a mutual fund under the symbol “NFLHX.” Losses suffered by Hercules clients and the risk of litigation related to these losses jeopardized the success of this fund, because any litigation should have been made public, the agency said.

U.S. prosecutors said that in one case, McDonald obtained $675,000 in investment funds from a group of victims in March 2021 and allegedly misappropriated those funds in various ways, including spending money at a Porsche dealership and on a website selling men's designer clothing, the court heard. status of documents. Additionally, nearly $110,000 was wired to the owner of a home McDonald was renting in Arcadia, California.

McDonald also allegedly sent false account statements to clients of his ISA company. A customer who subsequently invested approximately $351,000 and needed the money for a down payment on a house was informed by McDonald that much of the money had been lost. The investor never recovered his entire investment, according to the agency's press release.

Steve Coogan is the editor-in-chief of MyNorthwest. You can read more of her stories here. Follow Steve on Xor send him an email here.