A California investment advisor and CNBC personality has been charged by the government with securities fraud and stealing client funds.

James Arthur McDonald Jr., 50, formerly of Arcadia, Calif., was not in custody and the U.S. Attorney’s Office believes he is currently in hiding, it said yesterday.

The U.S. Attorney’s Office for the Central District of California said that McDonald lost tens of millions of dollars for the clients of his firm, Hercules Investments LLC, in late 2020 after he made a huge bet that the economy was going to collapse in the wake of Covid-19 and the U.S. presidential election of that year. He also expressed those views in his role as a media commentator.

Hercules took on “a risky short position that effectively bet against the health of the United States economy in the aftermath of the U.S. presidential election,” said the U.S. Attorney’s Office. “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, according to [the government’s affidavit]. By December 2020, Hercules clients were complaining to company employees about the losses in their accounts.”

After facing huge losses that cut into his 2% asset management fee and likely legal liabilities, McDonald started a loss recovery plan that included a capital raise, according to authorities with the Department of Justice and the Securities and Exchange Commission.

In early 2021, the DOJ said, McDonald solicited millions more from clients without telling them about Hercules’ massive losses and he misrepresented how those funds would be put to use. He said he was going to launch a mutual fund under the ticker symbol NFLHX, a reflection of his love of football, the DOJ said.

“As part of the capital raise, McDonald obtained $675,000 in investment funds from one victim group on March 9, 2021,” said a press release from the U.S. Attorney’s Office. “He then misappropriated those funds in various ways, including spending roughly $174,610 of them at a Porsche dealership. Approximately $109,512 was transferred to the landlord of a home McDonald was renting in Arcadia; and approximately $6,800 was spent on a website that sells designer menswear.”

The most recent ADV for Hercules, updated in mid-June of this year, showed the firm had $33.2 million in client assets under management, 105 clients and 144 accounts.

Besides the downtown Los Angeles-based Hercules, McDonald also ran another company as CEO called Index Strategy Advisors Inc. (ISA) in Redondo Beach. The government said McDonald falsely claimed this firm continued to be a registered investment advisor even though he had withdrawn it from state registration in May 2019. (Hercules Investments is still currently listed with the SEC, however, at its downtown Los Angeles address on West Fifth Street.) “He also allegedly sent [Index Strategy Advisors] clients false account statements, including for one client who invested approximately $351,000, later needed the money to make a down payment on a home, was informed by McDonald that much of the money had been lost, and never got his full investment back.”

The SEC also filed a lawsuit against McDonald yesterday, claiming he committed fraudulent schemes against investors by misleading them about their investments in Hercules and Index Strategy Advisors. The agency said he raised $3.6 million for a hedge fund linked to Index Strategy Advisors between May 2019 and October 2021 and used only about half to pursue the securities trades he promised investors. He often commingled investors’ funds with his own money, the SEC said.

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