Federal prosecutors said on Monday that a former CNBC analyst who was charged with scamming investors was detained over the weekend and placed on the FBI’s Most Wanted list for white-collar offenses.
The CEO and chief investment officer of Hercules Investments LLC and Index Strategy Advisors Inc., James Arthur McDonald, 52, of California, was a regular guest on CNBC.
McDonald allegedly lost tens of millions of dollars from Hercules clients after taking a risky short position that “effectively bet against the health of the United States economy in the aftermath of the U.S. presidential election” in late 2020, according to an indictment from a federal grand jury, Justice Department officials said in a news release. Clients lost between $30 and $40 million since the anticipated market collapse did not materialize.
Prosecutors claimed that because McDonald’s income from Hercules Investments was mostly based on a proportion of the assets he managed, the company’s losses as a result of McDonald’s short positions “significantly decreased the fees” he was able to earn.
Image – Yahoo News
McDonald allegedly asked investors for millions of dollars in early 2021 as part of a capital offering for Hercules Investments. He is accused of lying to investors about the intended use of the money, claiming to be starting a mutual fund, and of withholding information about the investment company’s losses from the prior year.
He reportedly raised $675,00 from a single victim organization. Approximately $7,000 was spent on a website selling designer clothes, while the remaining $174,610 was spent at a Porsche dealership, the prosecution said. Additionally, McDonald sent almost $100,000 to the landlord of the house he was renting.
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Additionally, it is alleged that McDonald routed clients to Index Strategy Advisors with fictitious account statements that exaggerated the amount of money in their accounts and misrepresented their clients to the firm.
McDonald was declared wanted by the authorities after he neglected to show up for his scheduled hearing before the US Securities and Exchange Commission in late 2021. McDonald was called before the commission to provide testimony regarding claims that he had misled investors.
The SEC accused McDonald and Hercules Investments of breaking federal securities law in a civil complaint it filed in September 2022. McDonald was deemed to be liable in the filing for $3,810,346 in net profits that were earned as a result of the alleged misconduct. Even when a federal arrest warrant was issued at that point, McDonald evaded capture.
According to court filings, McDonald reportedly informed someone he was going to “vanish” and deleted his email and phone accounts.
He was charged with one crime of securities fraud, one count of wire fraud, three counts of investment adviser fraud, and two charges of engaging in financial transactions involving property obtained from illegal activity by a federal grand jury in Los Angeles in January 2023.
He was taken into custody by the FBI over the weekend at a residence in Port Orchard, Washington.
In the upcoming weeks, McDonald will be transported to Los Angeles to face federal charges, but he made his initial appearance in the United States District Court in Tacoma, Washington.
He could get a maximum sentence of 20 years in federal prison for each of the charges of wire fraud and securities fraud, a maximum penalty of 10 years for the charge of financial transactions resulting from illegal behavior, and a maximum sentence of five years for the charge of investment advisor fraud, if found guilty.