A former San Gabriel Valley resident who was a frequent guest on financial television news programs then became a fugitive from justice after being accused of defrauding investors is expected to appear Monday in federal court after being arrested over the weekend.
James Arthur McDonald Jr., 52, formerly of Arcadia, was arrested Saturday at a residence in Port Orchard, Washington, and is expected to make his initial appearance Monday in U.S. District Court in Tacoma, Washington. He will arrive in Los Angeles in the coming weeks to face charges, according to the U.S. Attorney’s Office.
McDonald had been considered a fugitive since at least November 2021, when he failed to appear before the U.S. Securities and Exchange Commission to testify after allegations arose that he had defrauded investors. Prior to fleeing, McDonald also appeared to have terminated his previous phone and email accounts and told one person that he planned to “vanish,” according to court documents.
Since then, a federal grand jury in Los Angeles in January 2023 returned a seven-count indictment against McDonald. He is charged with one count of securities fraud, one count of wire fraud, three counts of investment adviser fraud, and two counts of engaging in monetary transactions in property derived from unlawful activity.
According to the indictment, McDonald was the CEO and chief investment officer of two companies: Hercules Investments LLC, based in downtown Los Angeles, and Index Strategy Advisors Inc., based in Redondo Beach. He frequently appeared as an analyst on the CNBC financial television news network, prosecutors say.
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. McDonald projected that the COVID-19 pandemic and the election would result in major sell-offs 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, court papers show.
McDonald allegedly also falsely represented to clients that ISA, his other firm, was a registered investment adviser, even though he had withdrawn ISA as a state-registered investment adviser firm in May 2019. He allegedly sent ISA clients false account statements, including for one client who invested about $351,000, later needed the money to make a down payment on a home, was informed by McDonald that much of the money had been lost, and never got his full investment back, according to the U.S. Attorney’s Office.
If convicted of all charges, McDonald would face up to 20 years in federal prison for each securities fraud and wire fraud count, up to 10 years on the monetary transactions derived from unlawful activity count, and up to five years on the investment adviser fraud count, prosecutors noted.