The FBI has arrested James Arthur McDonald Jr., a former CNBC analyst and California CEO who has been a fugitive for three years after he failed to appear before the U.S. Securities and Exchange Commission to testify on accusations of defrauding investors, according to the Department of Justice.
McDonald was arrested in Port Orchard, Washington, Saturday and will be extradited to California to stand trial, reports the New York Post on Tuesday.
According to the DOJ, McDonald, the former CEO and chief investment officer for Hercules Investments LLC and Index Strategy Advisors Inc. in Los Angeles, 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 [2020] U.S. presidential election."
A U.S. District judge said in 2022, while McDonald was still a fugitive, that he was liable for $3.8 million, representing the net profits gained, according to the SEC.
McDonald has been charged with one count each of securities fraud and wire fraud; three counts of investment adviser fraud; and two counts of having engaged in monetary transactions in property derived from unlawful activity.
He made his initial court appearance in Tacoma on Monday.
If he is found guilty, McDonald could face up to 20 years in federal prison on the securities and wire fraud causes; 10 years for each charge related to using investor funds to benefit himself, and five years for the investment adviser fraud charge.
McDonald, who frequently appeared as an analyst on CNBC, "projected that the COVID-19 pandemic and the election would result in major selloffs that would cause the stock market to drop," the statement from the DOJ said.
However, the market downturn never happened, resulting in Hercules losing between $30 million and $40 million in client funds, and by December 2020, the investors started complaining about their losses, according to the DOJ.
Beginning in January 2021, the DOJ says, McDonald started to solicit funds from investors to raise capital for Hercules, but allegedly "misrepresented how the funds would be used" and didn't reveal the company's losses.
The DOJ further reported that McDonald is suspected of using approximately $675,000 from the investors' funds for himself, including allegedly "spending roughly $174,610 of them at a Porsche dealership," transferring more than $100,000 of the funds to a landlord of a home he rented in Arcadia, California, and spending another $6,800 through an online designer clothing store.
Sandy Fitzgerald ✉
Sandy Fitzgerald has more than three decades in journalism and serves as a general assignment writer for Newsmax covering news, media, and politics.
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