A California-based advisor and former frequent CNBC analyst is in custody after eluding law enforcement for more than two years, according to the Justice Department.
James Arthur McDonald was arrested over the weekend in Port Orchard, Wash., about 15 miles outside Seattle. He made an initial court appearance in Tacoma, Wash., and is expected to be transferred to Los Angeles to face federal charges in the next few weeks.
In January 2023, a Los Angeles grand jury indicted him on one count each of securities and wire fraud and three counts of investment adviser fraud. If convicted, he faces up to 20 years in prison.
McDonald’s victims collectively lost between $30 million and $40 million, and he’s been a fugitive since late 2021, according to the DOJ.
McDonald was CEO and chief investment officer for two companies: Los Angeles-based Hercules Investments and Redondo Beach-based Index Strategy Advisors. He also frequently appeared as a market analyst on CNBC, including on “Fast Money” and “The Exchange.” (In 2020, Hercules Investments won a WealthManagement.com Industry Award in the category of Alternative Asset Management.)
In late 2020, McDonald began shorting the U.S. economy, betting the market would tank following the COVID-19 pandemic and that year’s presidential election. But the market continued its climb in 2021, and Hercules clients lost millions in the process, according to the DOJ.
By the end of 2020, Hercules clients noticed the losses in their accounts, and since McDonald tied his fees to assets under management, those losses hurt McDonald’s bottom line. In 2021, McDonald went to Hercules investors, claiming he wanted to raise capital for the firm and launch a mutual fund under the ticker “NFLHX” (McDonald was a big football fan, according to the DOJ).
Instead, he used the funds he raised to pay down the losses the firm’s clients sustained—losses that threatened NFLHX’s success. Additionally, any litigation stemming from the losses would need to be disclosed to fund investors. McDonald also allegedly used some of the funds for his own ends; he raised about $675,000 from one victim group in March 2021 and spent about $174,610 of that money at a Porsche dealership, $109,512 to rent a house in Arcadia, Calif., and $6,800 on designer menswear, according to the Justice Department.
Neither McDonald nor attorneys representing him could be reached for comment.
Additionally, over several years, McDonald raised $3.6 million via his other company, Index Strategy Advisors, but he spent more than $1 million of that money for his own uses and more than $2 million on payments to Hercules clients and firm expenses, according to an SEC complaint filed in 2021.
McDonald continued sending ISA clients false account statements, but the SEC was closing in.
The commission contacted McDonald’s attorneys to schedule an interview in October 2021 and eventually subpoenaed him. But McDonald allegedly told his former romantic partner that he was not going to stick around and planned to “vanish,” according to FBI Agent Robert Chowthi.
In a criminal complaint, Chowthi said McDonald gave his former partner (named “D.J.” in the complaint) a laptop and cell phone to secretly communicate with the advisor, as well as a thumb drive detailing which Hercules clients were owed money. One morning in fall 2021, D.J. awoke to find McDonald gone, according to Chowthi, with his phone and email accounts deactivated.
According to the DOJ, a federal judge found the advisor liable for more than $3.8 million in a parallel SEC action.