James Arthur McDonald Jr., a former advisor and CNBC celebrity described by prosecutors as a one-time model of Wall Street success, was sentenced to five years in federal prison for orchestrating a $5 million dollar investment fraud that duped clients and funded his luxury lifestyle.
McDonald, 53, who went on the lam for three years before being tracked won by the FBI, pleaded guilty to securities fraud in April and was sentenced Monday in Los Angeles by U.S. District Judge Dale S. Fischer, who said restitution will be determined at a future hearing.
“To his victims, [McDonald] seemed to embody the American Dream,” prosecutors wrote in a sentencing memo. “But looks can be deceiving, and as [McDonald’s] victims learned, their trust had been betrayed.”
McDonald, who once headed two Los Angeles-based investment firms—Hercules Investments and Index Strategy Advisors (ISA)—first ran into trouble in 2020, when he took a high-risk position betting that the U.S. economy would collapse after the presidential election and Covid-19 disruptions. Instead, markets surged. Hercules clients were left with catastrophic losses—between $30 million and $40 million, according to the Department of Justice.
In 2020, McDonald “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,” prosecutors said.
Rather than come clean, McDonald doubled down. In early 2021, he began soliciting new investor money to cover up the damage, falsely claiming it would be used for business expansion or trading. In reality, he used the funds to bankroll an opulent lifestyle, including a $174,610 Porsche and a $109,512 rent payment on a luxury home in Arcadia, Calif. The DOJ said he misappropriated most of a $675,000 investment from one group alone.
“He misrepresented how the funds would be used and failed to disclose the massive losses,” the DOJ said in a statement.
At ISA, McDonald solicited about $3.6 million for what he marketed as a hedge fund strategy. In truth, he invested less than half the money or clients. Sometimes he didn’t trade at all. Instead, he fabricated account statements to show phantom gains and commingled investor funds with personal accounts, using the money for luxury vehicles, credit card payments, and Ponzi-style repayments to earlier investors, prosecutors said.
The SEC said McDonald raised more than $5.1 million from 23 clients and misused over $2.9 million for personal expenses, operating costs, and payouts that had no basis in actual profits. In some cases, he even persuaded Hercules clients to send payments directly to other defrauded investors—a tactic designed to mask trading losses and buy time.
As the scam unraveled and investor complaints began pouring in, McDonald simply disappeared. He skipped a scheduled SEC deposition in November 2021, turned off his phone and email accounts, and told at least one associate he planned to “vanish,” prosecutors said.
He stayed hidden for nearly three years.
In June 2024, FBI agents tracked him down in Port Orchard, Wash., living under the alias “Brian Thomas,” prosecutors said in their memo. They found a fake Washington, D.C., driver’s license with his photo and the false name. He was taken into custody and has remained in federal jail ever since. McDonald has been in jail since he was apprehended.
The SEC also filed a civil case against him in 2022 that in April 2024 led to a federal judge ordering McDonald and Hercules to pay $3.8 million in disgorgement and interest, plus $3.6 million in civil fines personally, and $1.4 million in fines for Hercules.
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