Date: Feb. 19, 2025
Contact: [email protected]
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 – has agreed to plead guilty to defrauding his victims out of at least $2.7 million, the Justice Department announced today.
James Arthur McDonald Jr., formerly of Arcadia, has agreed to plead guilty to one count of securities fraud, a felony that carries a statutory maximum sentence of 20 years in federal prison.
McDonald has been in federal custody since June 2024, when he was arrested in a residence in Port Orchard, Washington, after being a fugitive since November 2021, when he failed to appear before the United States Securities and Exchange Commission (SEC) to testify after allegations arose that he had defrauded investors.
According to his plea agreement, 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.”
“This defendant was entrusted by his clients to care for their money and he violated that trust by using it to enrich himself,” said Acting United States Attorney Joseph T. McNally. “Because of the work of the prosecutors in our office, the FBI, and IRS Criminal Investigation (IRS-CI), he will be held accountable for stealing from others. We hope it will bring some solace to his victims.”
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, according to court documents.
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 -- that is, paying some ISA clients using funds from other clients.
In total, McDonald caused losses of between approximately $2,745,892 and approximately $3,025,892, according to his plea agreement.
The IRS-CI and FBI are investigating 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 Attorneys Alexander B. Schwab and Nisha Chandran of the Corporate and Securities Fraud Strike Force are prosecuting this case.
IRS-CI is the criminal investigative arm of the IRS, responsible for conducting financial crime investigations, including tax fraud, narcotics trafficking, money-laundering, public corruption, healthcare fraud, identity theft and more. IRS-CI special agents are the only federal law enforcement agents with investigative jurisdiction over violations of the Internal Revenue Code, obtaining a 90% federal conviction rate. The agency has 20 field offices located across the U.S. and 14 attaché posts abroad.