A Los Angeles County resident who made regular appearances as a financial analyst on CNBC was charged Wednesday, Sept. 21, with lying to investors about the health of his finance firm and failing to disclose massive losses incurred through risky investments following the onset of the COVID-19 pandemic.
James Arthur McDonald Jr., 50, who is believed to be in hiding, was charged with a single count of securities fraud, according to the U.S. Attorney’s Office. McDonald was the CEO of Los Angeles County-based Hercules Investments and Index Strategy Advisors Inc., prosecutors said.
According to the U.S. Attorney’s Office, McDonald’s Hercules clients lost between $30 million and $40 million as a result of his failed “short” investment predicting that the stock market would suffer a major collapse following the onset of the pandemic and the turmoil of the 2020 presidential election. Unable to collect client fees due to the steep losses, McDonald began soliciting more investments in early 2021, but he allegedly misrepresented how the money would be spent and failed to disclose the massive losses incurred by Hercules due to his failed “short” position the previous year.
According to prosecutors, McDonald obtained a $675,000 investment from a victim group in March 2021, but he allegedly misspent those funds, including spending $174,000 at a Porsche dealership, sending $109,000 to the landlord of the home he was renting in Arcadia and spending $6,800 on a menswear website.
Prosecutors also contend he falsely claimed to clients that his Index Strategy Advisors company was a registered investment adviser, which it had not been since 2019. He also allegedly sent clients of that company bogus account statements. Prosecutors said one of those clients invested $351,000 with the firm, but when the investor tried to access the money to purchase a home, the person learned the money had been lost.
McDonald was subpoenaed to testify before the U.S. Securities and Exchange Commission in November 2021, but he failed to appear. Prosecutors said he disconnected his phone lines and terminated his email accounts, and allegedly told one person that he planned to “vanish.”
The securities fraud count carries a possible sentence of up to 20 years in federal prison.