James McDonald, CEO and CIO of Hercules Investments.
CNBC
A former investment company CEO who previously appeared as a paid contributor to CNBC was arrested on fraud charges after more than two years as a fugitive as part of a Securities and Exchange Commission investigation, federal prosecutors said.
The defendant, James Arthur McDonald Jr., is accused of misrepresenting to investors how he would use the millions of dollars he raised from them between 2019 and 2021 and also concealing “massive losses” from investors that his company, Hercules Investments LLC, suffered, according to an indictment in U.S. District Court in Los Angeles.
McDonald’s arrest Saturday at a home in Port Orchard, Washington, came nearly two months after a federal judge found him civilly liable for more than $3.8 million in damages to the SEC for violating securities laws.
The 52-year-old was ordered held without bail Monday by a federal court judge in Tacoma, Washington, who ruled he was a flight risk.
McDonald agreed to be transferred from Washington to Los Angeles within weeks to face charges of one count of securities fraud, one count of bank fraud, three counts of investment adviser fraud and two counts of conducting monetary transactions involving unlawfully owned assets to provide activity.
He faces a maximum sentence of 20 years in prison if convicted of securities fraud or wire fraud alone.
A 2022 affidavit from an FBI agent seeking to arrest McDonald’s said: “McDonald was also a paid contributor to CNBC and appeared on CNBC programs several times in late 2020 and throughout 2021, commenting on topics such as stock recommendations “the foundation of companies expected to experience growth over the course of the year.”
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The wanted poster for James Arthur McDonald Jr.
Courtesy: FBI Los Angeles Field Office
That affidavit also states that McDonald regularly described in investor promotional materials that he had a bachelor’s degree in economics from Harvard University, when in fact he graduated from Harvard Extension School. This school is not a traditional college and does not offer bachelor’s degrees in economics.
“McDonald’s transcripts from Harvard Extension School list his major as ‘social sciences,’ and only one of the sixteen courses he took … appears to be a business course,” the affidavit states.
Hercules, one of two firms McDonald led, lost between $30 million and $40 million in client investments in late 2020 through risky short positions taken by McDonald, “which effectively bet against the health of the post-crisis U.S. economy.” “. U.S. presidential election,” the U.S. Attorney’s Office in Los Angeles said in a news release.
McDonald’s bet would have paid off if the election had resulted in “large sell-offs that resulted in a decline in the stock market,” according to the 2022 FBI affidavit. “But the market didn’t collapse like McDonald had hoped.”
McDonald, 52, allegedly spent nearly $175,000 of the $675,000 he raised from a group of victim investors at a Porsche dealership, wired another $109,512 of his money to the landlord of a home that he was renting in California and spent about $6,800 of his money on a website that sold designer men’s clothing, the indictment against him says.
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McDonald went on the run in November 2021 after failing to appear at a scheduled SEC deposition to testify about his alleged defrauding of investors in a scheme to create a mutual fund under the ticker symbol “NFLHX.” The ticker would have been a nod to McDonald’s affection for NFL football.
“Prior to his escape, McDonald also appeared to have canceled his previous telephone and email accounts and told one person that he planned to ‘disappear,'” prosecutors said.
McDonald is also accused of falsely representing to clients at his other firm, Index Strategy Advisors in Redondo Beach, that he was a registered investment adviser, even though he had 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 customers and/or creditors of Hercules and pay Ponzi-like returns to investors to create the false impression that ISA was a successful company,” the indictment says.
“McDonald misrepresented to ISA customers that their funds were held in individual accounts. Instead, defendant McDonald commingled ISA’s clients’ funds with Hercules’ clients’ funds and Hercules’ personal funds.”
In the case of an ISA client who had about $351,000 invested and later “needed the money to make a down payment on a house, he was informed by McDonald that much of the money had been lost and never received it his full investment back”. prosecutors said.
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2024-06-18 23:21:30
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