Former CNBC commentator James McDonald arrested for defrauding investors

Former CNBC commentator James McDonald, who spent nearly three years on the run after being indicted on fraud charges, has been arrested in Washington state, according to federal officials. He could face decades in prison if convicted.

McDonald, 52, formerly of Arcadia, California, was arrested on Saturday at a residence in Port Orchard, Washington, according to the U.S. Justice Department. He appeared in court on Monday and will be transferred to Los Angeles in the coming weeks.

According to prosecutors, McDonald fled in November 2021 after deleting his email accounts and telling one person he planned to “vanish” amid allegations against him and his company. He also failed to appear before the U.S. Securities and Exchange Commission.

In January 2023, a federal grand jury returned a seven-count indictment against McDonald, charging him with securities fraud, 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, McDonald, as the chief executive of Hercules Investments, lost tens of millions of dollars in client money after taking on a risky short position that effectively bet against the health of the U.S. economy in the aftermath of the 2020 presidential election and the COVID-19 pandemic.

McDonald believed that the pandemic and the election would cause major selloffs that would cause the stock market to drop. When this didn’t happen, Hercules clients lost between $30 million and $40 million. Clients began to complain in December 2020.

Months later, in early 2021, McDonald solicited millions worth of funds from investors for Hercules Investments but failed to disclose the massive losses in 2020 and misrepresented how the money would be used, according to the indictment.

As part of the capital raise, McDonald obtained $675,000 in funds from one victim group but went on spending $174,610 at a Porsche dealership and $109,512 to pay his landlord in Arcadia. He also spent about $6,800 on a website selling designer menswear, according to court documents.