Fugitive former investment firm CEO arrested on securities, wire fraud charges – NBC New York

• A former investment company CEO who previously appeared on CNBC as a guest analyst has been arrested in Washington state on fraud charges after more than two years as a fugitive from a Securities and Exchange Commission investigation. Exchange Commission.
• James Arthur McDonald Jr. is accused of misrepresenting to investors how he would use millions of dollars raised from them in early 2021, and also failing to disclose “massive losses” to those investors by his company Hercules Investments LLC, the Los Angeles feds said. » prosecutors said.
• An FBI agent said McDonald, who had lived in California, falsely claimed to have a bachelor's degree in economics from Harvard University when he was actually a graduate of the Harvard Extension School.

A former investment company CEO who previously appeared as a paid contributor to CNBC has been arrested on fraud charges after more than two years as a fugitive from a Securities and Exchange Commission investigation, federal prosecutors said.

The defendant, James Arthur McDonald Jr., is accused of misrepresenting to investors how he would use the millions of dollars he raised between 2019 and 2021, and also hiding “massive losses” from investors. that his company Hercules Investments LLC had suffered, according to an indictment in U.S. District Court in Los Angeles.

McDonald's arrest Saturday at a Port Orchard, Washington, residence came nearly two months after a federal judge found him civilly liable for more than $3.8 million in damages and interests to the SEC for violations of the securities laws.

The 52-year-old was ordered held without bail Monday by a federal court judge in Tacoma, Washington, who ruled he was a flight risk.

McDonald agreed to be transferred from Washington to Los Angeles within weeks, to face charges of 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 illegal activities. activity.

He faces a maximum sentence of 20 years in prison if convicted solely on the securities fraud or wire fraud charge.

A 2022 affidavit from an FBI agent requesting McDonald's arrest notes that “McDonald's was also a paid contributor on CNBC and appeared several times on CNBC programs in late 2020 and into 2021, commenting on topics ranging from recommendations to Stocks based on companies likely to experience growth during this period. and after the COVID-19 pandemic, to the “disconnect between Main Street and Wall Street” in terms of market exuberance despite the ongoing challenges of the pandemic.

That affidavit also states that McDonald regularly described himself in investor promotional materials as having a bachelor's degree in economics from Harvard University, when in fact he was a graduate of the Harvard Extension School. This school is not a traditional college and does not offer a bachelor's degree in economics.

“McDonald's Harvard Extension School transcripts indicate his major is 'social sciences,' and only one of the sixteen courses he took… appears to be an economics course,” the affidavit states .

Hercules, which was one of two companies run by McDonald, lost between $30 million and $40 million in customer investments in late 2020 on risky short positions taken by McDonald “that were effectively betting against the health of the U.S. economy in the aftermath of the crisis. “U.S. presidential election,” the U.S. Attorney's Office in Los Angeles said in a statement.

McDonald's bet would have paid off if the election caused “strong sales that would cause the stock market to fall,” according to the 2022 FBI affidavit. “But the market did not fall as McDonald's had hoped.”

McDonald, 52, allegedly spent nearly $175,000 of the $675,000 raised from a group of victimized investors at a Porsche dealership, allegedly wired another $109,512 of their funds to the owner of a home he was renting in California and allegedly spent about $6,800 of their own money on a website that sold designer men's clothing, the indictment against him says.

McDonald went on the run in November 2021 after failing to appear for scheduled testimony before the SEC to testify about his alleged defrauding of investors in what he presented to them as a plan to launch a mutual fund under the symbol “NFLHX”. The ticker would have been a nod to McDonald's affection for NFL football.

“Before fleeing, McDonald also appears to have terminated his previous phone and email accounts and told one person he planned to 'disappear,'” prosecutors said.

McDonald is also accused of falsely representing to clients of his other company, Index Strategy Advisors in Redondo Beach, that he was a registered investment advisor, although he had removed the company's status as an investment advisory firm registered by the State in May 2019.

“McDonald misappropriated ISA customer funds by using them to pay his personal expenses, pay Hercules' customers and/or creditors and pay investors Ponzi-style returns to create the false impression that ISA was a successful business,” the indictment states.

“McDonald falsely represented to ISA clients that their funds would be held in individual accounts. Instead, Defendant McDonald mixed ISA client funds with client funds and personal funds of Hercules. “

In the case of an ISA client who had invested approximately $351,000 and subsequently “needed money for a down payment on a house, was informed by McDonald that a large portion of the 'money had been lost and never recovered its entire investment.' » prosecutors said.