A former CNBC financial commentator and CEO on the run accused of defrauding investors out of millions of dollars after a failed bet “against” the U.S. economy in 2020 has been arrested after nearly three years on the run.
James Arthur McDonald Jr., 52, was arrested by the FBI in Port Orchard, Washington, on Saturday and is expected to be extradited to California within the next few weeks to stand trial on the charges, according to the FBI. U.S. Department of Justice.
McDonald had been a fugitive since November 2021 after failing to appear in court to testify before the U.S. Securities and Exchange Commission regarding charges that he misled investors.
He was the former CEO and chief investment officer of two Los Angeles financial firms, Hercules Investments LLC and Index Strategy Advisors Inc.
According to the Justice Department report, McDonald and his company “frequently appeared as an analyst on the CNBC financial television news network.”
According to the Justice Department, his troubles began in early 2020, when the former financial advisor reportedly “lost tens of millions of dollars of Hercules client funds after taking risky short selling positions that effectively bet on the health of the U.S. economy following the U.S. presidential election.”
“McDonald predicted that the COVID-19 pandemic and the election would cause a massive sell-off and a decline in the stock market.”
However, the market decline never materialized, and Hercules lost “$30 million to $40 million” of client funds.
By December 2020, investors “began complaining to company employees about losses in their accounts.”
McDonald then solicited millions of dollars’ worth of funding from investors in January 2021 to fund Hercules, according to the Department of Justice.
To make matters worse, he allegedly “misrepresented how he would use the funds” and failed to disclose to investors “the substantial losses that Hercules had incurred.”
McDonald is also accused of squandering $675,000 in investment funds he collected from one group of victims on his own behalf, “spending approximately $174,610 of that amount at a Porsche dealership.”
He also allegedly transferred more than $100,000 of the funds to the landlord of a home he rented in Arcadia, California, and another $6,800 to an online store to buy designer clothes, according to the Justice Department.
The suspected fraudsters reportedly sent falsified account statements to clients, “including some who had invested approximately $351,000.”
According to the Justice Department report, his client then asked for money as a down payment on a house, but was told by McDonald that “the majority of the money had been lost and he had not received back the full amount he had invested.”
In 2022, a U.S. District Court ordered McDonald, who remains at large, to pay $3,810,346 in restitution, representing the net profits he gained from his alleged conduct. SEC.
McDonald was indicted on one count of securities fraud, one count of wire fraud, three counts of investment adviser fraud and two counts of engaging in financial transactions involving property derived from unlawful activities.
The former CNBC financial analyst made his initial court appearance in Tacoma, Washington, on Monday and is expected to be extradited to Los Angeles in the coming weeks.
If convicted, the suspected fraudsters face up to 20 years in federal prison for each count of securities fraud and wire fraud, a 10-year sentence for using investor funds for their own benefit, and five years for each count of investment advisor fraud.
