A former advisor and paid CNBC guest analyst who fled after being accused of scamming investors has agreed to plead guilty to defrauding his victims out of at least $2.7 million, the Justice Department announced this week.
James Arthur McDonald Jr., 53, formerly of Arcadia, California, will plead guilty to one count of securities fraud, a felony that carries a statutory maximum sentence of 20 years in federal prison, according to a press release.
McDonald has been in federal custody since June 2024, when he was arrested in Washington state after being a fugitive since November 2021. He failed to appear before the U.S. Securities and Exchange Commission to testify after allegations arose that he had defrauded investors, prosecutors said.
According to his plea agreement, law enforcement found, among other things at McDonald's hideout, a fake Washington, D.C., driver’s license bearing McDonald’s photograph and the name “Brian Thomas.”
“This defendant was entrusted by his clients to care for their money and he violated that trust by using it to enrich himself,” Acting U.S. Attorney Joseph T. McNally said. “Because of the work of the prosecutors in our office, the FBI and IRS Criminal Investigation, he will be held accountable for stealing from others. We hope it will bring some solace to his victims.”
McDonald was the CEO and chief investment officer of two companies headquartered in Los Angeles: Hercules Investments LLC and Index Strategy Advisors Inc. He frequently appeared as an analyst on CNBC.
In late 2020, McDonald lost tens of millions of dollars of Hercules client money after adopting a risky short position that effectively bet against the health of the U.S. economy after the presidential election, the Justice Department said.
McDonald projected that the COVID-19 pandemic and the election would result in major selloffs that would cause the stock market to drop. When the market decline didn’t occur, Hercules clients lost between $30 million and $40 million, according to prosecutors. By December 2020, Hercules clients were complaining to company employees about the losses in their accounts.
In early 2021, McDonald solicited millions of dollars from investors in the form of a purported capital raise for Hercules but misrepresented how the funds would be used and failed to disclose the massive losses Hercules previously sustained, according to the Justice Department. As part of the capital raise, McDonald obtained $675,000 in investment funds from one victim group on March 9, 2021. He misappropriated most of those funds in various ways, including spending $174,610 at a Porsche dealership and transferring $109,512 to the landlord of a home McDonald was renting in Arcadia, the DOJ says.
McDonald also defrauded clients of ISA, his other firm, using less than half of the approximately $3.6 million he raised for trading purposes. Instead, McDonald frequently commingled ISA client funds with funds from his personal bank account, which he used to purchase luxury cars and to pay rent on his home, personal credit card charges, and Hercules operating expenses and to make Ponzi-like payments to ISA clients — that is, paying some ISA clients using funds from other clients — prosecutors said.
McDonald caused losses of between $2.75 million and about $3 million, according to his plea agreement.
The FBI and IRS Criminal Investigation are investigating this matter.
In September 2022, the SEC filed a civil complaint charging McDonald and Hercules with violations of federal securities law. In April 2024, a federal judge found McDonald and Hercules liable and ordered that they pay several million dollars in disgorgement and civil penalties, prosecutors said.
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