Once a well-known face on financial news networks, former San Gabriel Valley resident and financial analyst James Arthur McDonald Jr. was arrested over the weekend in Port Orchard, Washington. McDonald, 52, is expected to appear in United States District Court in Tacoma, Washington, following charges of orchestrating a multimillion-dollar fraud scheme. He was apprehended after having been on the run since November 2021, when he shirked a subpoena to testify before the Securities and Exchange Commission (SEC), the U.S. Attorney's Office reported.
In January of this year, a federal grand jury in Los Angeles indicted McDonald on several counts, including securities and wire fraud, both carrying a maximum of 20 years in federal prison per count. He is also facing claims of investment adviser fraud and engaging in monetary transactions related to unlawful activity. According to court documents, McDonald's fall from grace pivoted on a misplaced bet against the American economy in late 2020. His risky short positions resulted in significant losses for clients of Hercules Investments LLC, amounting to somewhere between $30 million and $40 million.
McDonald's role as CEO and chief investment officer of Hercules Investments, and his additional involvement with Index Strategy Advisors Inc. (ISA), painted him as a trusted figure. This façade crumbled when it became apparent that he had not only lost investor money through dubious bets but also misled investors about the financial state of the company during capital raises. For instance, in a move to kickstart a mutual fund themed around his love for football, the "NFLHX," McDonald concealed the precarious position Hercules clients were in following the massive financial losses. This lack of transparency compounded the deception when a capital raise brought in funds under pretenses that court documents claim were false.
Specific misuse of the raised capital includes approximately $174,610 spent at a Porsche dealership and sums in the range of $100,000 used for renting lavish accommodations and purchasing designer menswear. In a further gross breach of trust, McDonald is accused of fabricating the registered status of ISA as an investment adviser after its withdrawal in May 2019 and supplying clients with false account statements. One unnamed client, with an investment of nearly $351,000 intended for a home down payment, was informed of substantial losses and never saw the complete return of his funds, per court records.
While McDonald has been deemed responsible by United States District Judge Percy Anderson on April 21 for more than $3.8 million in net profits obtained through his alleged fraudulent conduct, the current case against him proves a presumption of innocence until presumed guilty beyond a reasonable belief in a court of law. Agencies investigating this case, such as the FBI and IRS Criminal Investigation, have yet to disclose any additional findings as the court proceedings continue.
