James Arthur McDonald Jr., Securities Fraud, California 2023

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Defrocked Financial Analyst Arrested on Federal Charges

LOS ANGELES – A former San Gabriel Valley resident and frequent guest on financial television news programs has been arrested on federal charges of defrauding investors. James Arthur McDonald Jr., 52, formerly of Arcadia, was taken into custody Saturday at a residence in Port Orchard, Washington.

McDonald, who was the CEO and chief investment officer of Hercules Investments LLC and Index Strategy Advisors Inc., is accused of one count of securities fraud, one count of wire fraud, three counts of investment adviser fraud, and two counts of engaging in monetary transactions in property derived from unlawful activity.

According to the indictment, 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.

Between December 2020 and March 2021, 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 and approximately $109,512 was transferred to the landlord of a home McDonald was renting in Arcadia.

McDonald is expected to appear today in United States District Court in Tacoma, Washington, and will arrive in Los Angeles in the coming weeks to face federal charges in this district.