The Fugitive
After three years on the run, a CNBC financial analyst pleads guilty to fraud
“Rather fail with honor than succeed by fraud.” - Sophocles
James Arthur McDonald Jr. was on CNBC in March 2021 warning of a disconnect between Main Street and Wall Street.
Undisclosed was a bigger disconnect.
As the business news network presented McDonald as a market expert, his clients had been complaining of massive losses for months.
McDonald, 53, was a paid contributor on CNBC as well as the CEO of two investment firms in Los Angeles: Hercules Investments and Index Strategy Advisors Inc.
He’d made a big bet that President Joe Biden was due for a downturn that never came.
“McDonald projected that the COVID-19 pandemic and the election would result in major selloffs that would cause the stock market to drop,” according to the Justice Department. “When the market decline didn’t occur, Hercules clients lost between $30 million and $40 million.”
McDonald didn’t just lose his customers’ money. He misappropriated millions to pay business expenses, rent, credit card bills and even a 2021 Porsche 911 Turbo S Cabriolet for $174,000. He also misrepresented how he invested client funds.
McDonald’s customers began complaining about losses as early as December 2020, according to court records, yet he was still building his credibility on CNBC as late as June 2021.
By September 2021, the Securities and Exchange Commission had filed an injunction and a slew of fraud allegations against him. In November 2021, instead of showing up to answer to the SEC’s civil complaint, McDonald went on the run.
It’s hard to do TV appearances when you’re dodging justice, but at least McDonald proved better at running and hiding than investing and scamming. Authorities didn’t catch up with him for three years.
They found him in June 2024 at a residence in Port Orchard, Wash., with a fake Washington state driver’s license under the name “Brian Thomas.”
He’s been in federal custody ever since, and on Wednesday he agreed to plead guilty to securities fraud. He faces up to 20 years in federal prison where cable TV channels can be somewhat limited.
And this is the third case involving rogue talking heads on CNBC that Business Blunders has covered since since it launched in March 2024.
There’s Andrew Left, 54, a frequent CNBC bloviator who was charged in July for stock manipulation. And then there’s Carlos Watson, 55, who once hosted his own show on the network. Watson was sentence to ten years in prison in December for the massive fraud at a company he founded, Ozy Media.
Full disclosure: I used to work at CNBC. All I say now is that you’ve got to watch CNBC, and by that I mean, you’ve got to watch out.
Way wrong
McDonald ran around financial media circles predicting the Dow Jones Industrial Average would plunge to 15,000 in 2021. Instead it ended the year at 36,338.30 with an 18.73% gain.
It was not only a bad call, but he amplified it in a press release. To be fair, a lot of even smarter guys in the room were predicting a crash that year – and it never came for them either.
McDonald made a lot of other bold pronouncements. An investor who put up $420,000 heard him brag about a successful track record, producing returns as high as 300%.
He claimed that he played college football somewhere in Maryland but tapped out because of an injury. He also issued press releases touting a bachelor’s degree in economics from Harvard University. Truth be told, he went to the Harvard Extension School, an open-enrollment institution that doesn’t offer bachelor’s degrees in economics.
Joe Pastor, an investment bank who worked with McDonald, wrote a book about him, “Hubris: The Rise and Fall of James McDonald,” published in 2022. “His charm and ‘hubris’ was so powerful, after one of his presentations, someone asked if they could join his ‘cult’,” reads a preview.
What? Someone paid for that?
Anyone who paid as much as $299.99 a year for CNBC Pro, could have received a tip about McDonald’s now-defunct Hercules Fund (NFLHX) in February 2021.
To be fair, CNBC wasn’t the only organization that didn’t properly vet McDonald.
“He is a nationally-recognized expert on the topics of macroeconomics, event-driven investing, growth investing, portfolio construction, index investing, exchange-traded funds, digital currencies, and index-linked derivatives,” according to a publication called EQDerivatives.
(Wow, that is some investment knowledge portfolio. Did anybody check if he could back that up?)
WealthManagement.com named McDonald’s firm the Alternative Asset Manager of the year in 2020.
“My intensity and competitiveness on the field is what makes me extremely effective as an investment manager,” McDonald said in a November 2020 interview with Forbes. “I became fascinated by the story of how junk bonds via Mike Milken and others were used to revolutionize financing and M&A during the 90s. I became obsessed with making my own history through innovative use of a financial product.”
(Michael Milken. Now that guy was something, all right – which is why he has a place in the Business Blunders Hall of Shame.)
You can do it, too
It’s fun to go back and watch McDonald’s TV clips now that we know more than the CNBC producers knew when they put him on the air.
He comes across as confident, sincere and even likeable. They’ve got him talking about energy, technology, the financial industry and monetary policy like there isn’t anything thing this guy doesn’t know.
Yes, even CNBC can be duped, writes ethics speaker Chuck Gallagher on LinkedIn.
(This is how a scoundrel becomes a star. This is how a web of lies gets spun.)
Here are a few select appearances for those who may have the stomach to watch:
Why Hercules Investments’ McDonald thinks the market is overvalued - Jan. 21, 2021.
There are opportunities in renewable energy, strategist says – Feb. 16, 2021
James McDonald on financial literacy and the racial wealth gap – Feb. 23, 2021
Hercules’ James McDonald: There’s a disconnect between Main Street and Wall Street – March 18, 2021
There's an abundance of extremes in the markets: Hercules Investments’ McDonald - May 4, 2021
Monetary policy paradox pressuring U.S. stock market: Hercules’ James McDonald - June 17, 2021
My favorite clip is the short inspirational video that CNBC featured on Feb. 12, 2021, slugged, James McDonald’s advice to the next generation.
(Yeah, like he’s a fine, upstanding example for America’s youth.)
“You can do it too,” he spouts. (So original.) “Go after what you want. And be all that you can be.”
One final word of advice for the kids out there: You’re supposed to “be all that you can be” in the U.S. Army not a federal prison.
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"Be all that you can be". Well, I guess fraudster and prisoner are things you can be, so McDonald is being more of the things he can be.