Former CNBC analyst and fugitive arrested by FBI after nearly 3 years on the run

A former CNBC analyst who was on the FBI’s most wanted list for white-collar crimes was arrested over the weekend after being accused of defrauding investors, federal prosecutors said Monday.

James Arthur McDonald, 52, of California, was a frequent guest on CNBC and CEO and Chief Investment Officer of Hercules Investments LLC and Index Strategy Advisors Inc.

According to a federal grand jury indictment, McDonald is alleged to have lost tens of millions of dollars in Hercules customer funds after taking a risky short position that “effectively bet against the health of the U.S. economy in the aftermath of the U.S. presidential election” in late 2020, Justice Department officials said in a news release. The predicted market decline did not materialize, causing customers to lose between $30 million and $40 million.

McDonald’s compensation from Hercules Investments was based primarily on a percentage of the assets he managed, prosecutors said, meaning the company’s losses due to McDonald’s short positions “significantly reduced” the fees he was able to collect.

In early 2021, McDonald is said to have raised millions of dollars from investors as part of a capital increase for Hercules Investments. He is said to have made false statements about how the funds would be used by telling investors he was launching an investment fund and failing to disclose the investment company’s losses in the previous year.

He allegedly collected $675,000 from a group of victims. Of that, McDonald spent $174,610 at a Porsche dealership; more than $100,000 was wired to the landlord of a house McDonald rented; and nearly another $7,000 was spent on a website that sold designer men’s clothing, prosecutors said.

McDonald is also alleged to have made false statements to Index Strategy Advisors about his clients and sent them false account statements that incorrectly stated the amount of money in their accounts.

McDonald became a fugitive in late 2021 when he failed to appear before the U.S. Securities and Exchange Commission, prosecutors said. McDonald had been summoned to the commission to testify in response to allegations that he defrauded investors.

In September 2022, the SEC filed a civil lawsuit accusing McDonald and Hercules Investments of violating federal securities laws. The lawsuit found that McDonald was liable for $3,810,346 in net gains derived from the alleged misconduct. A federal arrest warrant was subsequently issued, but McDonald remained on the run.

According to court documents, McDonald allegedly told a person he planned to “disappear” and blocked his phone and email accounts.

In January 2023, a grand jury in a federal court in Los Angeles indicted him, charging him 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 involving assets derived from illegal activities.

He was arrested by the FBI over the weekend at a home in Port Orchard, Washington.

McDonald initially appeared in U.S. District Court in Tacoma, Washington, but will be brought to Los Angeles in the coming weeks to face federal charges.

If convicted, he faces up to 20 years in a federal prison for each count of securities fraud and wire fraud, up to 10 years for the count of monetary transactions resulting from illegal activities, and up to an additional five years for the count of investment adviser fraud.