Evergreen Reporter

James Arthur McDonald Jr., a former financial television news analyst, was arrested over the weekend in Port Orchard, Washington. The 52-year-old, previously residing in Arcadia, California, is expected to appear today in United States District Court in Tacoma, Washington. He will be transferred to Los Angeles in the coming weeks to face federal charges.

McDonald has been a fugitive since November 2021 after failing to appear before the United States Securities and Exchange Commission (SEC) to testify regarding allegations of investor fraud. Prior to his disappearance, McDonald reportedly terminated his phone and email accounts and indicated plans to "vanish," according to court documents.

In January 2023, a federal grand jury in Los Angeles indicted McDonald on seven counts: 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 property derived from unlawful activity.

The indictment details that McDonald served as CEO and chief investment officer for Hercules Investments LLC and Index Strategy Advisors Inc. (ISA). Both companies are based in California. McDonald frequently appeared as an analyst on CNBC's financial news programs.

In late 2020, McDonald's risky short position led to significant losses for Hercules clients—between $30 million and $40 million—after betting against the U.S. economy post-presidential election. By December 2020, clients were voicing concerns about their account losses.

McDonald's compensation was primarily based on a percentage of assets under management at Hercules—typically 2%—which meant that client losses significantly reduced his fees. In early 2021, he solicited millions from investors under the guise of a capital raise for Hercules but allegedly misrepresented the use of funds and did not disclose prior losses.

Court documents allege that McDonald misappropriated $675,000 from investors on March 9, 2021. Expenditures included approximately $174,610 at a Porsche dealership and around $109,512 for rent payments on his Arcadia home.

Additionally, McDonald falsely claimed ISA was a registered investment adviser despite withdrawing its state registration in May 2019. He also sent false account statements to clients; one client who invested approximately $351,000 never recovered their full investment after being informed by McDonald that much of it had been lost.

An indictment is merely an allegation; the defendant is presumed innocent until proven guilty beyond reasonable doubt in court. If convicted on all charges, McDonald faces up to 20 years per securities fraud and wire fraud count, up to 10 years for monetary transactions derived from unlawful activity count, and up to five years per investment adviser fraud count.

The FBI and IRS Criminal Investigation are handling this case's investigation. In September 2022, the SEC filed a civil complaint against McDonald and Hercules for federal securities law violations. On April 21st this year, United States District Judge Percy Anderson found McDonald liable for approximately $3.81 million representing net profits gained from alleged conduct.

Assistant United States Attorney Alexander B. Schwab from the Corporate and Securities Fraud Strike Force is prosecuting this case.