A financial adviser who appeared frequently on CNBC is wanted for fraud, according to a complaint announced by federal prosecutors on Wednesday.
James Arthur McDonald Jr., 50, ran two Los Angeles-based investment firms called Hercules Investments and Index Strategy Advisors. Federal prosecutors charged McDonald with one count of securities fraud for allegedly lying to investors.
McDonald, who faces up to 20 years in prison if convicted, “is believed to be in hiding,” the U.S. Attorney’s office said in a news release.
In late 2020, Hercules clients lost between $30 million and $40 million after McDonald took a “risky short position” that hinged on the stock market tanking after the presidential election, prosecutors allege.
“McDonald projected that the COVID-19 pandemic and the election would result in large sales that would send the stock market down,” the U.S. attorney’s office said in its release.
But the economic downturn he expected didn’t happen, and his clients began complaining to Hercules employees about the losses, the U.S. attorney’s office said.
McDonald then tried to raise funds for Hercules, but misrepresented how the funds would be used and he did not disclose the company’s massive losses to investors, the US Attorney’s office alleges.
“The losses to Hercules clients and the potential for litigation related to those losses jeopardized the success of that fund because any litigation had to be made public,” federal prosecutors said.
McDonald raised $675,000 from investors in March 2021. Federal prosecutors allege he then misappropriated those funds, spending $174,610 at a Porsche dealership, $6,800 on a website that sold designer clothing and $109,512 to the landlord of a home in Los Angeles that he rented in Los Angeles.
McDonald failed to appear for a November 2021 subpoena from the Securities and Exchange Commission, federal prosecutors said. Investigators believe McDonald terminated his phone number and email and told someone he planned to “disappear.”
McDonald is also accused of telling clients that Index Strategy Advisors was a registered advisory firm, although it lost that status in 2019.
At Index Strategy Advisors, prosecutors allege, McDonald sent clients false account statements, including to one client who said he never got his full investment of more than $350,000 back when he had to make a down payment on a home.
McDonald was still at large Thursday, a spokesman for the U.S. Attorney’s office told USA TODAY.
USA TODAY’s request for comment on an email listed on Hercules Investments’ Facebook page was not immediately returned Thursday.
The websites for Hercules Investments and Index Strategy Advisors appeared to have been taken down on Thursday.
A CNBC spokesperson told USA TODAY that the network took McDonald off the air as soon as it learned he was under investigation. He last appeared on the network in July 2021.