Nearly three years since James Arthur McDonald Jr. walked out of a meeting with the SEC over accusations of defrauding investors out of millions, the FBI picked up the first CNBC expert in Washington state this weekend.
The former CEO of Hercules Investments, who will appear today in federal court in Tacoma, Washington, could face “a maximum statutory sentence of 20 years in federal prison for each count of securities fraud and wire fraud,” according to the Department of Justice. Justice. McDonald also faces “up to 10 years in federal prison on the charge of monetary transactions arising from illegal activities, and up to five years in federal prison on the charge of investment advisor fraud,” the feds say.
The office of U.S. Attorney for Central California Martin Estrada expects McDonald to be transferred to Los Angeles within the next month.
McDonald, a perennial presence as an analyst on CNBC over the years, has not been at the Comcast-owned outlet since July 2021, when news of an investigation into his companies first became public. Subpoenaed by the SEC three years ago, the head of Southern California-based Hercules Investments and Index Strategy Advisors was scheduled to appear before the Commission in early November 2021, but opted for a broker.
McDonald lost between $30 and $40 million to his investors after his premise that the Covid-19 pandemic and the 2020 US election would cause a stock market crash proved wrong. Losses that he used various financial tricks to hide from those investors. “McDonald participated in a scheme to defraud whereby he defrauded ISA Fund investors by making and/or disseminating false and misleading statements, misused investors’ funds by using them to pay his personal expenses, pay customers and/or creditors of Hercules, and pay Ponzi. “Similar returns for investors,” noted a fraud lawsuit filed against the self-styled investment advisor more than two years ago.
Of the millions McDonald raised for his companies, prosecutors alleged he took nearly $700,000 for personal use in what appears to be one case among many.
Personal use that included “spending approximately $174,610 of it at a Porsche dealership,” the Justice Department filed Monday in a reiteration of his Sept. 22, 2020, civil lawsuit against the then-hidden McDonald. “Approximately $109,512 was transferred to the owner of a home McDonald was renting in Arcadia; and approximately $6,800 was spent on a website that sells designer men’s clothing,” prosecutors stated today.
Earlier this year, U.S. District Judge Percy Anderson ruled that McDonald was liable for $3,810,346 — that’s the figure the government estimates is his “net profit” from the alleged fraud activity.
The FBI and IRS are still investigating the matter, with Assistant U.S. Attorney Alexander B. Schwab of the Securities and Corporate Fraud Strike Force prosecuting the case.
By the way, McDonald was caught in a house in Port Orchard, WA. The former industrial sawmill town of less than 18,000 people is about an hour’s drive from Seattle. For trivia fans, the increasingly expensive Pacific Northwest village is the hometown of riodale‘s Madelaine Petsch.
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