A California-based advisor (and frequent CNBC guest) who was on the run from law enforcement for more than two years will go to prison for five years for stealing millions from investors, according to the Department of Justice.
James Arthur McDonald originally pleaded guilty earlier this year to one count of securities fraud, with a maximum potential sentence of 20 years in prison. The department accused McDonald of defrauding his clients out of more than $3 million. United States District Judge Dale Fischer will order restitution in the case at a later date.
McDonald, 53, was the CEO and chief investment officer for Los Angeles-based Hercules Investments and frequently appeared as a market analyst on CNBC’s “Fast Money” and “The Exchange.”
However, in late 2020, McDonald lost clients between $30 million and $40 million when he shorted the market, expecting it to dip and have significant selloffs after the COVID-19 crisis and the 2020 presidential election.
This didn’t happen, and by December, his clients called Hercules about the losses in their accounts. (The losses also affected McDonald’s bottom lines because he tied his fees to the amount of clients’ managed assets.)
The following year, McDonald approached Hercules investors to raise capital for the firm via a mutual fund, but he instead used the funds he raised to pay down the losses the firm’s clients sustained. According to the DOJ, he also used funds for his expenses, spending $174,610 at a Porsche dealership, $109,512 on a home he rented, and nearly $7,000 on designer menswear.
Simultaneously, he defrauded clients of his other firm, the Redondo Beach, Calif.-based Index Strategy Advisors, using less than half of the $3.6 million raised for trading. Instead, he commingled the funds with his personal account, using the money to purchase luxury cars, pay off credit card charges, pay rent and make “Ponzi-like” payments to existing ISA clients.
“To his victims, [McDonald] seemed to embody the American Dream,” prosecutors said in a sentencing memorandum. “But looks can be deceiving, and as [McDonald’s] victims learned, their trust had been betrayed.”
As a part of its investigation into his actions, the Securities and Exchange Commission contacted McDonald to schedule an interview in October 2021 (and eventually subpoenaed him). But McDonald allegedly told his former romantic partner that he planned to “vanish.” In 2023, a Los Angeles grand jury indicted him on wire and investment advisor fraud.
McDonald was arrested outside of Seattle, Wash., in June 2024, where law enforcement found, among other things, a fraudulent ID with McDonald’s photograph and the name “Brian Thomas.”
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