A former San Gabriel Valley resident and financial television analyst was sentenced to five years in federal prison for defrauding investors out of millions of dollars. James Arthur McDonald Jr., 53, received the sentence from United States District Judge Dale S. Fischer. Restitution will be determined at a later hearing.
McDonald pleaded guilty to one count of securities fraud on April 7. He served as CEO and chief investment officer of Hercules Investments LLC and Index Strategy Advisors Inc. (ISA), both based in Los Angeles, and was known for his appearances on CNBC.
In late 2020, McDonald lost between $30 million and $40 million of Hercules client funds after making risky bets against the U.S. economy following the presidential election. When his prediction that the market would fall did not materialize, clients experienced significant losses and began voicing complaints by December 2020.
Despite these losses, McDonald raised additional funds from investors in early 2021 without disclosing the previous financial setbacks. On March 9, 2021, he obtained $675,000 from one group of investors but used much of it for personal expenses, including spending over $174,000 at a Porsche dealership and transferring more than $109,000 to pay rent on his Arcadia residence.
At ISA, McDonald misused less than half of about $3.6 million raised for trading purposes. He mixed client funds with his own accounts to purchase luxury items and cover personal expenses. Some ISA clients were paid with money from other clients in a manner similar to a Ponzi scheme.
Prosecutors stated that McDonald's actions resulted in more than $3 million in losses for victims.
McDonald became a fugitive after failing to appear before the United States Securities and Exchange Commission (SEC) in November 2021 regarding allegations of investor fraud. He was arrested in June 2024 at a home in Port Orchard, Washington, where authorities found a fake driver’s license with his photo under another name.
“To his victims, [McDonald] seemed to embody the American Dream,” prosecutors said in their sentencing memorandum. “But looks can be deceiving, and as [McDonald’s] victims learned, their trust had been betrayed.”
The FBI and IRS Criminal Investigation handled the investigation into this case.
The SEC filed a civil complaint against McDonald and Hercules Investments LLC in September 2022 for violations of federal securities law. In April 2024, United States District Judge Percy Anderson ruled against them and ordered payment of several million dollars in disgorgement and penalties (https://www.sec.gov/litigation/litreleases/2022/lr25520.htm).
Assistant United States Attorney Alexander B. Schwab, Deputy Chief of the Criminal Division, along with Assistant United States Attorney Nisha Chandran from the Major Frauds Section prosecuted the case.
