An investment adviser from Los Angeles County who was a frequent guest on CNBC has been arrested after nearly three years on the lam.
James Arthur McDonald Jr., 52, formerly of Arcadia, was arrested over the weekend in Port Orchard, Washington, according the United States Department of Justice.
McDonald was identified by the DOJ as the CEO and chief investment officer of two L.A. area companies, Hercules Investments LLC, based in downtown, and Index Strategy Advisors Inc., based in Redondo Beach.
McDonald has been a fugitive of law since November 2021 when he failed to appear before the United States Securities and Exchange Commission to testify regarding accusations of defrauding investors.
Prior to fleeing, McDonald allegedly deleted all his phone and email accounts and told one person that he planned to “vanish,” charging documents state.
In January 2020, he was indicted by a federal grand jury on seven counts including wire fraud, securities fraud and investment adviser fraud.
According to charging documents, McDonald lost tens of millions of dollars belonging to clients of Hercules after he adopted a “risky short position that effectively bet against the health of the United States economy in the aftermath of the U.S. presidential election.”
McDonald predicted that the COVID-19 pandemic and the election would lead to a major selloffs that would cause the stock market to drop. When the decline never came, his clients lost between $30 and $40 million, the DOJ alleges.
In early 2021, he solicited millions of dollars’ worth of investor funds to raise capital for Hercules, but allegedly “misrepresented how the funds would be used and failed to disclose the massive losses Hercules previously sustained,” the DOJ said.
As part of those efforts, he raised about $675,000 in investment funds from one victim group and allegedly used large portions of the cash for himself, spending more than $174,000 at a Porsche dealership, transferring about $110,000 to his landlord for the home he was renting in Arcadia and about $6,800 at a website that sells designer menswear.
He also allegedly sent clients falsified account statements, including to one man who invested more than $350,000. When the client went to withdraw some of his money in order to make a down payment on a home, he was informed by McDonald that much of the money had been lost. The client never got his full investment back, the DOJ said.
McDonald was taken into custody Saturday and was expected to make his first appearance in federal court on Monday. He is expected to be transported to Los Angeles in the coming weeks.
If convicted of all charges, he could face a maximum sentence of 20 years in federal prison for each securities fraud and wire fraud count, up to 10 years in federal prison for each count related to using investor funds for his own benefit and up to five years in federal prison for one count of investment adviser fraud.
The SEC previously filed a civil complaint that charged McDonald and Hercules with violating federal securities law. In April, a U.S. District Judge found McDonald liable for more than $3.8 million, representing his net profits gained from his alleged misconduct.
The case remains under investigation by the FBI and the IRS.