A former television financial analyst accused of defrauding investors out of millions of dollars has been taken into custody in Washington state after spending years on the run, the Justice Department announced.
James Arthur McDonald Jr., 52, was tracked down over the weekend to a residence in Port Orchard and will now be sent back to California to face federal charges, including counts of securities fraud and investment adviser fraud.
"McDonald had been considered a fugitive since at least November 2021, when he failed to appear before the United States Securities and Exchange Commission to testify after allegations arose that he had defrauded investors," the U.S. Attorney's Office for the Central District of California said in a press release.
"Prior to fleeing, McDonald also appeared to have terminated his previous phone and email accounts and told one person that he planned to ‘vanish,’" the office added, citing court documents.
INVESTMENT COMPANY EXECUTIVE CHARGED FOR ALLEGEDLY WITHHOLDING MILLIONS OF DOLLARS FROM CLIENTS
The Justice Department said McDonald was the CEO and chief investment officer of Hercules Investments LLC, and Index Strategy Advisors Inc., both based in California.
Prosecutors say McDonald ran into trouble in late 2020, when he "lost tens of millions of dollars of Hercules client money after adopting a risky short position that effectively bet against the health of the United States economy in the aftermath of the U.S. presidential election.
"McDonald projected that the COVID-19 pandemic and the election would result in major selloffs that would cause the stock market to drop," the U.S. Attorney’s Office said. "When the market decline didn’t occur, Hercules clients lost between $30 million and $40 million. By December 2020, Hercules clients were complaining to company employees about the losses in their accounts."
CALIFORNIA THIEVES TARGETING LEGO STORES FOR BLACK MARKET DEALS
Then in early 2021, prosecutors allege, "McDonald solicited millions of dollars' worth of funds from investors in the form of a purported capital raise for Hercules but allegedly misrepresented how the funds would be used and failed to disclose the massive losses Hercules previously sustained."
"As part of the capital raise, McDonald obtained $675,000 in investment funds from one victim group on March 9, 2021. He allegedly misappropriated those funds in various ways, including spending roughly $174,610 of them at a Porsche dealership," the U.S. Attorney’s Office said. "Approximately $109,512 was transferred to the landlord of a home McDonald was renting in Arcadia; and approximately $6,800 was spent on a website that sells designer menswear, according to court documents."
With his other company, McDonald allegedly sent clients "false account statements, including for one client who invested approximately $351,000, later needed the money to make a down payment on a home, was informed by McDonald that much of the money had been lost, and never got his full investment back."
In total, the Securities and Exchange Commission said McDonald "raised more than $5.1 million from 23 investors and clients, and misappropriated more than $2.9 million of those funds for personal expenses and Ponzi-like payments to earlier investors."
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The FBI and the IRS have gotten involved in the investigation, and McDonald has been served a seven-count indictment by a federal grand jury. He would face a maximum sentence of 20 years if he is found guilty on securities and wire fraud counts, the Justice Department said.
