Fugitive ex-CEO of funding agency arrested on securities, wire fraud costs

A former funding firm CEO who beforehand appeared as a paid contributor to CNBC was arrested on fraud charges after greater than two years as a fugitive from a Securities and Exchange Commission investigation, federal prosecutors stated.

The defendant, James Arthur McDonald Jr., is accused of misrepresenting to buyers how he would use hundreds of thousands of {dollars} he raised from them between 2019 and 2021, and in addition hid “huge losses” from buyers that his firm Hercules Investments LLC had sustained, in accordance with an indictment in U.S. District Court in Los Angeles.

McDonald’s arrest Saturday at a residence in Port Orchard, Washington, got here almost two months after a federal judge discovered him civilly responsible for greater than $3.8 million in damages to the SEC for violating securities legal guidelines.

The 52-year-old was ordered held with out bail Monday by a choose in Tacoma, Washington, federal courtroom, who dominated he was a flight threat.

McDonald agreed to be transferred from Washington to Los Angeles inside weeks, to face costs there of 1 rely of securities fraud, one rely of wire fraud, three counts of funding adviser fraud, and two counts of partaking in financial transactions in property derived from illegal exercise.

He faces a most attainable sentence of 20 years in jail if convicted of both the securities fraud or wire fraud rely alone.

A 2022 affidavit from an FBI agent looking for McDonald’s arrest notes that “McDonald was additionally a paid contributor on CNBC and appeared on CNBC applications a number of occasions in late 2020 and in 2021, commenting on subjects starting from inventory suggestions primarily based on companies more likely to see development throughout and after the COVID-19 pandemic to the ‘disconnect between Principal Road and Wall Road’ by way of market exuberance regardless of the pandemic’s lingering challenges.”

That affidavit additionally says that McDonald frequently described himself in promotion supplies to buyers as having a bachelor’s diploma in economics from Harvard College, when in truth he graduated the Harvard Extension College. That college isn’t a standard school and doesn’t supply bachelor’s levels in economics.

“McDonald’s trascripts from the Harvard Extension College checklist his focus as ‘Social Sciences,’ and solely one of many sixteen courses he took … seems to be an economics class,” the affidavit stated.

Hercules, which was certainly one of two corporations that McDonald headed, in late 2020 misplaced between $30 million to $40 million of purchasers’ investments on dangerous brief positions that McDonald took “that successfully guess towards the well being of the US economic system within the aftermath of the U.S. presidential election,” the Los Angeles U.S. Lawyer’s Workplace stated in a press launch.

McDonald’s guess would have paid off if the election induced “large selloffs that might trigger the inventory market to drop,” in accordance with the 2022 FBI affidavit. “However the market didn’t drop as McDonald had hoped.”

McDonald, 52, allegedly spent almost $175,000 of the $675,000 raised from one group of sufferer buyers at a Porsche dealership, transferred one other $109,512 of their funds to the owner of a house he was renting in California, and spent about $6,800 of their cash on an internet site that offered designer mensswear, the indictment towards him says.

McDonald went on the lam in November 2021 after failing to seem for scheduled testimony earlier than the SEC to testify about his alleged defrauding of buyers in what he had pitched to them as a plan to launch a mututal fund below the ticker image “NFLHX.” The ticker would have been a nod to McDonald’s affection for NFL soccer.

“Previous to fleeing, McDonald additionally appeared to have terminated his earlier telephone and e-mail accounts and informed one person who he deliberate to ‘vanish,’ ” prosecutors stated.

McDonald can also be accused of falsely representing to purchasers of his different agency, Index Technique Advisors in Redondo Seaside, that he was a registered funding advisor, regardless of having withdrawn the agency as a state-registerd funding advisor agency in Might 2019.

“McDonald misappropriated ISA’s consumer funds by utilizing them to pay his private bills, pay Hercules’s purchasers and/or collectors, and pay Ponzi-like returns to buyers to create the misunderstanding that ISA was a profitable agency,” the indictment says.

“McDonald falsely represented to ISA’s purchasers that their funds can be held in particular person accounts. As a substitute, defendant McDonald commingled ISA’s consumer funds with Hercules’s consumer funds and private fund.”

Within the case of 1 ISA consumer who had invested about $351,000 and who later “wanted the cash to make a down fee on a house, was knowledgeable by McDonald that a lot of the cash had been misplaced, and by no means bought his full funding again,” prosecutors stated.