CNBC financial analyst James Arthur McDonald Jr. arrested by FBI after three years on the run

A former financial expert and CEO of CNBC who is now on the run and accused of defrauding his investors of millions after a failed “bet against” the U.S. economy in 2020 has been caught after nearly three years on the run.

James Arthur McDonald Jr., 52, was arrested by the FBI in Port Orchard, Washington, on Saturday. According to the U.S. Department of Justice, he will be extradited to California “in the coming weeks” to face trial for the crimes he is accused of.

McDonald had been on the run since November 2021 after failing to appear before the U.S. Securities and Exchange Commission (SEC) to testify on allegations of investor fraud.

He was the former CEO and Chief Investment Officer of two Los Angeles-based financial firms: Hercules Investments LLC and Index Strategy Advisors Inc.

In addition to his work as an entrepreneur, McDonald “frequently appeared as an analyst on the financial news channel CNBC,” the Justice Department reported.

His problems began in early 2020, when the former financial adviser “lost tens of millions of dollars in Hercules client funds after taking a risky short position that effectively bet against the health of the U.S. economy in the aftermath of the U.S. presidential election,” according to the Justice Department.

“McDonald predicted that the COVID-19 pandemic and the election would lead to major sell-offs that would cause stock markets to collapse.”

However, when a market downturn never occurred, Hercules lost between “$30 million and $40 million” in client funds.

In December 2020, investors began “complaining to company employees about losses on their accounts.”

Then, in January 2021, McDonald asked investors worth millions of dollars for capital for Hercules, according to the Justice Department.

To make matters worse, he is said to have “made false statements about the use of the funds” and never disclosed to investors “the enormous losses Hercules had previously suffered.”

McDonald is also suspected of receiving $675,000 in mutual funds he collected from a group of victims and using them for his own purposes – “approximately $174,610 of which he spent at a Porsche dealership.”

According to the Justice Department, he also allegedly wired over $100,000 of those funds to the landlord of a home he rented in Arcadia, California, and another $6,800 to an online store to purchase designer clothing.

The alleged fraudster allegedly sent fake bank statements to customers, “including one for a customer who had invested approximately $351,000.”

The Justice Department reported that the customer later requested his money back as a down payment on a home, but McDonald told him “that much of the money was lost and he never fully recovered his investment.”

In 2022, a U.S. District Judge found McDonald liable for $3,810,346 while he was on the run, which the SEC said was his net profit from the alleged conduct.

McDonald was charged with one count of securities fraud, one count of wire fraud, three counts of investment advisory fraud, and two counts of engaging in monetary transactions involving assets derived from illegal activities.

The former CNBC financial analyst made his first court appearance in Tacoma, Washington, on Monday and is expected to be extradited to Los Angeles in the coming weeks.

If found guilty, the alleged fraudster faces up to 20 years in prison for each count of securities fraud and wire fraud, ten years for each count related to misappropriating investor funds for his own benefit, and five years for one count of investment adviser fraud.