Source: US FBI
LOS ANGELES – A former San Gabriel Valley resident – who was a frequent guest on financial television news programs then became a fugitive from justice after being accused of scamming investors – was sentenced today to 60 months in federal prison for defrauding his victims out of millions of dollars.
James Arthur McDonald Jr., 53, was sentenced by United States District Judge Dale S. Fischer, who will order restitution in this case at a hearing to take place on a future date.
McDonald pleaded guilty on April 7 to one count of securities fraud.
McDonald was the CEO and chief investment officer of two companies headquartered in Los Angeles: Hercules Investments LLC and Index Strategy Advisors Inc. (ISA). He frequently appeared as an analyst on the CNBC financial television news network.
In late 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. McDonald projected that the COVID-19 pandemic and the election would result in major selloffs that would cause the stock market to drop. 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.
In early 2021, McDonald solicited millions of dollars’ worth of funds from investors in the form of a purported capital raise for Hercules but 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 misappropriated most of those funds in various ways, including spending $174,610 at a Porsche dealership and transferring $109,512 to the landlord of a home McDonald was renting in Arcadia.
McDonald also defrauded clients of ISA, his other firm, using less than half of the approximately $3.6 million he raised for trading purposes. Instead, McDonald frequently commingled ISA client funds with funds from his personal bank account, which he used to purchase luxury cars and to pay rent on his home, personal credit card charges, and Hercules operating expenses and to make Ponzi-like payments to ISA clients – such as paying some ISA clients using funds from other clients.
In total, prosecutors argue that McDonald caused his victims more than $3 million in losses.
McDonald failed to appear before the United States Securities and Exchange Commission (SEC) in November 2021 to testify after allegations arose that he had defrauded investors and remained a fugitive until his arrest in June 2024 at a residence in Port Orchard, Washington. McDonald has been in custody since then. At McDonald’s Washington state hideout, law enforcement found, among other things, a fake Washington, D.C., driver’s license bearing McDonald’s photograph and the name “Brian Thomas,” according to court documents.
“To his victims, [McDonald] seemed to embody the American Dream,” prosecutors argued in a sentencing memorandum. “But looks can be deceiving, and as [McDonald’s] victims learned, their trust had been betrayed.”
The FBI and IRS Criminal Investigation investigated this matter.
In September 2022, the SEC filed a civil complaint charging McDonald and Hercules with violations of federal securities law. In April 2024, United States District Judge Percy Anderson found McDonald and Hercules liable and ordered that they pay several million dollars in disgorgement and civil penalties.
Assistant United States Attorney Alexander B. Schwab, Deputy Chief of the Criminal Division, and Assistant United States Attorney Nisha Chandran of the Major Frauds Section prosecuted this case.