James Arthur McDonald Jr., a frequent guest on national TV news programs who became a fugitive after being accused of scamming investors, will spend the next five years in prison.
The 53-year-old had previously pleaded guilty to one count of securities fraud earlier this year.
The U.S. Attorney’s Office for the Central District of California issued a media release on Monday that outlined the actions of McDonald, who was the CEO and chief investment of two L.A.-based companies: Hercules Investments, LLC and Index Strategy Advisors.
Additionally, he “frequently appeared” as an analyst on financial news station CNBC, prosecutors said.
“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 United States economy in the aftermath of the U.S. presidential election,” the attorney’s office explained in the media release. “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.”
“By December 2020, Hercules clients were complaining to company employees about the losses in their accounts,” the release continued.
By early 2021, McDonald, who used to reside in the San Gabriel Valley, had solicited millions of dollars worth of funds from investors in the form of a “purported capital raise” for the Hercules firm; however, he misrepresented where those funds were going and failed to disclose the large losses sustained by Hercules.
One example of this activity occurred on March 9, 2021, when McDonald obtained $675,000 in investment funds from one victim group. It was later found he used the money in other ways, spending $174,610 at a Porsche dealership and transferring $109,512 to a landlord in Arcadia who was renting a home to him.
It wasn’t just clients of Hercules who were affected, the U.S. Attorney’s Office said, as McDonald also defrauded Index Strategy Advisors (ISA) clients as well. He is said to have used less than half of the approximately $3.6 million he raised for trading purposes, instead combining those funds with money from his own personal bank account.
He then used that money to buy luxury cars and pay his rent, credit card bills and operating expenses for the Hercules firm. Those funds were also used to “make Ponzi-like payments” to ISA clients.
“In total, prosecutors argue that McDonald caused his victims more than $3 million in losses,” officials stated.
McDonald was called to testify against the U.S. Securities and Exchange Commission in 2021 but failed to appear. He spent nearly three years on the run until his arrest in June 2024 in Port Orchard, Washington – just outside of Seattle. Since then, he has been in federal custody.
At McDonald’s Washington state hideout, law enforcement found, among other things, a fake Washington, D.C., driver’s license bearing McDonald’s photograph and the name “Brian Thomas,” according to court documents.
The SEC filed a civil complaint against McDonald and Hercules Investments, LLC in September 2022 that charged them with violating federal securities law. A judge found both parties liable and ordered them to pay several million dollars in disgorgement and civil penalties.
A date for McDonald’s restitution hearing has not been set.
Assistant United States Attorney Alexander B. Schwab, Deputy Chief of the Criminal Division, and Assistant United States Attorney Nisha Chandran of the Major Frauds Section prosecuted this case.
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