By Kenneth Corbin

A long-running saga involving a prominent financial advisor who became a fugitive has come to an end, with James McDonald entering a guilty plea to one count of securities fraud, a felony that carries a maximum sentence of 20 years in prison.

Throughout the chaos of 2020, McDonald repeatedly -- and publicly -- forecast a dramatic fall in the U.S. stock market and positioned his clients to cash in on the expected crash through what prosecutors described as a risky short strategy.

McDonald, 53, a Harvard graduate and frequent CNBC pundit, was predicting at least as late as January 2021 that the Dow Jones Industrial Average would drop to 15,000, arguing that the effects of the pandemic shutdown hadn't been fully realized and predicting that the vaccine rollout would happen more slowly than most were predicting. At the time, the blue-chip stock index was at more than 30,000.

The market crash never happened, and clients of McDonald's advisory firm, Los Angeles-based Hercules Investments, lost between $30 million and $40 million, according to prosecutors. By December 2020, McDonald was fielding client complaints about the losses.

One element of McDonald's fraud began in early 2021, when he began soliciting money from investors under the guise of a capital raise for his advisory business.

Instead, prosecutors say McDonald misappropriated those funds for a variety of purposes, including nearly $175,000 spent at a Porsche dealership and more than $100,000 paid to his landlord for the house he was renting.

Another fraud targeted clients of a separate advisory firm McDonald ran, Index Strategy Advisors. Beginning in mid-2019, McDonald solicited roughly $3.6 million from clients that was to be invested in the market. But he used less than half the money for trading, frequently commingled client funds with his personal account, and used some of the money to purchase luxury cars, make rent and credit-card payments, and make Ponzi-like payments to other advisor clients, prosecutors say.

All told, McDonald's fraud caused losses of between about $2.7 million and just over $3 million, according to his plea agreement. He has been held in custody since last June. His lawyers didn't immediately respond to a request for comment.

After the Securities and Exchange Commission began investigating fraud allegations, McDonald was called to testify before the commission about the matter in November 2021. He never showed up.

At that point, he told a friend he planned to "vanish," prosecutors say. He shut down his phone and email accounts and went into hiding.

The Justice Department brought a seven-count indictment against McDonald in January 2023, when his whereabouts were still unknown.

In June 2024, law enforcement authorities finally tracked McDonald down, arresting him at a home in Port Orchard, Wash. There, among other things, they found a fake Washington, D.C., driver's license with McDonald's photograph and the name "Brian Thomas."

In April of that year, a judge found McDonald liable for around $3.8 million in a civil case.

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February 21, 2025 15:33 ET (20:33 GMT)

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