Former CNBC Analyst To Admit Conning Investors Out Of Nearly $3 Million

Authored by Jill McLaughlin via The Epoch Times (emphasis ours),

Former CNBC financial analyst James Arthur McDonald faces decades behind bars after defrauding investors out of at least $2.7 million, the U.S. Department of Justice (DOJ) announced Feb. 19.

McDonald, 53, a former resident of Arcadia, Calif., agreed to plead guilty to one count of securities fraud, a felony that carries a statutory maximum sentence of 20 years in federal prison.

“This defendant was entrusted by his clients to care for their money and he violated that trust by using it to enrich himself,” said acting U.S. Attorney Joseph McNally.

In June 2024, federal officers arrested McDonald in Washington state, where he fled in 2021 to avoid appearing before the U.S. Securities and Exchange Commission (SEC).

At his Washington hideout, officers found a fake Washington, D.C., driver’s license bearing McDonald’s photograph and the name “Brian Thomas,” according to the U.S. Attorney’s Office in Los Angeles.

McDonald was the CEO and chief investment officer of two companies headquartered in Los Angeles—Hercules Investments LLC and Index Strategy Advisors Inc. He also often appeared on the CNBC financial news network.

In late 2020, federal prosecutors say 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 U.S. 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, federal prosecutors asserted.

When the market decline did not happen, Hercules clients lost between $30 million and $40 million.

By December 2020, Hercules clients were complaining to company employees about the losses, according to court documents.

The SEC filed a civil complaint against McDonald in September 2022, charging him and Hercules with violating federal securities law.

In early 2021, McDonald solicited millions of dollars’ worth of funds from investors to raise capital for Hercules but misrepresented how the money would be used. The SEC alleges he raised more than $5.1 million from 23 investors and clients and misappropriated more than $2.9 million of those funds for personal investments and Ponzi-like payments to earlier investors, meaning he paid some clients using funds from other clients.

He also failed to disclose the massive losses the company previously realized, according to the U.S. Attorney’s Office in Los Angeles.

As part of the campaign to raise capital, McDonald received $675,000 in investment funds from one victim group on March 9, 2021. Prosecutors say he misappropriated most of those funds in various ways, including spending $179,610 at a Porsche dealership and transferring $109,512 to the landlord of a home McDonald was renting in Arcadia.

Prosecutors also claim McDonald defrauded clients of his other firm, Index Strategy Advisors Inc., using less than half of about $3.6 million he raised for trading purposes. Instead, he frequently commingled client funds with funds from his personal bank account, which he used to purchase luxury cars and to pay rent on his home, personal credit card charges, and Hercules operating expenses.

Prosecutors also say he used the funds to make Ponzi-like payments to the company’s clients.

In total, McDonald caused losses of about $2.7 to more than $3 million, according to federal prosecutors.

In April 2024, U.S District Judge Percy Anderson found McDonald and Hercules liable and ordered they pay civil penalties and several million dollars in disgorgement, which is a court-ordered remedy requiring that someone give up ill-gotten gains.