Fugitive ex-CEO of investment firm arrested on securities and wire fraud charges – NBC New York

• The former CEO of an investment firm who previously appeared as a guest analyst on CNBC was arrested in Washington state on fraud charges after spending more than two years on the run from an investigation by the U.S. Securities and Exchange Commission (SEC).
• James Arthur McDonald Jr. is accused of making false statements to investors about how he would use the millions of dollars he raised from them in early 2021. He also failed to disclose to those investors “the massive losses” his Hercules Investments LLC had suffered, Los Angeles federal prosecutors said.
• An FBI agent said McDonald, who had been living in California, falsely claimed to have a bachelor’s degree in economics from Harvard University when he actually graduated from Harvard Extension School.

A former investment firm CEO who previously appeared as a paid contributor to CNBC has been arrested on fraud charges after spending more than two years on the run from an investigation by the U.S. Securities and Exchange Commission (SEC), federal prosecutors said.

Defendant James Arthur McDonald Jr. is accused of making false statements to investors about how he would use the millions of dollars he raised from them between 2019 and 2021. He also concealed from investors “massive losses” suffered by his company, Hercules Investments LLC, according to an indictment filed in U.S. District Court in Los Angeles.

McDonald’s arrest on Saturday at an apartment in Port Orchard, Washington, came nearly two months after a federal judge ordered him to pay more than $3.8 million in civil damages to the U.S. Securities and Exchange Commission (SEC) for violating securities laws.

A federal judge in Tacoma, Washington, ordered the 52-year-old to be taken into custody on Monday because he poses a flight risk.

McDonald agreed to transfer from Washington to Los Angeles within a few weeks to face charges of securities fraud, wire fraud, three counts of investment adviser fraud and two counts of engaging in monetary transactions involving assets derived from illegal activities.

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

A 2022 affidavit from an FBI agent seeking McDonald’s arrest states: “McDonald was also a paid contributor to CNBC and appeared on CNBC programs several times in late 2020 and 2021, where he commented on topics ranging from stock recommendations based on companies likely to experience growth during and after the COVID-19 pandemic to the ‘disconnect between Main Street and Wall Street’ regarding market euphoria despite the ongoing challenges of the pandemic.”

That affidavit also says McDonald regularly claimed in promotional materials to investors that he had a bachelor’s degree in economics from Harvard University, when in fact he graduated from Harvard Extension School. That school is not a traditional college and does not offer bachelor’s degrees in economics.

“McDonald’s Harvard Extension School transcripts list his major as ‘social sciences,’ and only one of the sixteen courses he took appears to be an economics course,” the affidavit states.

Hercules, one of two companies run by McDonald, lost between $30 million and $40 million in client investments in late 2020 due to risky short positions McDonald took, “effectively betting against the health of the U.S. economy in the aftermath of the U.S. presidential election,” the U.S. Attorney’s Office in Los Angeles said in a press release.

McDonald’s bet would have paid off if the election had “triggered major sell-offs that caused the stock market to collapse,” the FBI’s 2022 affidavit said. “But the market did not collapse as McDonald had hoped.”

McDonald, 52, is accused of spending nearly $175,000 of the $675,000 raised by a group of victim investors at a Porsche dealership, wiring another $109,512 of their money to the landlord of a home he was renting in California and spending about $6,800 of their money on a website that sold designer men’s clothing, according to the indictment against him.

McDonald was on the run in November 2021 after he failed to show up for a scheduled deposition before the SEC to testify about his alleged deception of investors when he pitched them a plan to launch a mutual fund under the ticker symbol “NFLHX.” The ticker symbol would have been a reference to McDonald’s love of NFL football.

“Prior to his escape, McDonald also appeared to have canceled his previous phone and email accounts and told an individual that he planned to ‘disappear,'” prosecutors said.

McDonald is also accused of falsely representing to clients of his other firm, Index Strategy Advisors in Redondo Beach, that he was a registered investment adviser, even though he deregistered the firm as a federally registered investment advisory firm in May 2019.

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

“McDonald falsely misled ISA customers into believing that their funds were being held in individual accounts. Instead, the defendant McDonald commingled ISA customer funds with Hercules’ customer funds and personal funds.”

In the case of one ISA customer who invested about $351,000 and later needed the money “for a down payment on a house, he was informed by McDonald that much of the money was lost and he never received his investment back in full,” prosecutors said.