Former CNBC analyst James Arthur McDonald Jr. was arrested by the FBI in Washington after nearly three years on the run, accused of defrauding millions from investors following a failed 2020 bet against the US economy.

McDonald, a 52-year-old former CEO and chief investment officer of Hercules Investments LLC and Index Strategy Advisors Inc., allegedly misappropriated investor funds and sent falsified account statements to clients after incurring major losses in risky bets against the US economy. He faces multiple charges, including securities fraud and wire fraud, and could be sentenced to up to 20 years in federal prison for each count if convicted. His arrest in Port Orchard, Washington, marks the end of a nearly three-year stint as a fugitive.

McDonald's legal troubles began in early 2020 when Hercules Investments LLC, the firm he headed, suffered significant losses. The company's financial collapse was a result of McDonald's decision to gamble heavily on short positions against the US economy following the 2020 presidential election. This strategy included betting that the US stock market would decline, which did not happen, leading to tens of millions of dollars in client losses.

In January 2021, in an effort to recoup these losses, McDonald allegedly solicited additional funds from investors. However, according to the charges, he did not disclose the previous financial setbacks and misrepresented how these new funds would be used. Instead of investing the money as promised, McDonald is accused of spending significant amounts on personal expenditures. Records show that he spent $174,610 at a Porsche dealership, transferred over $100,000 to his landlord, and used approximately $6,800 on designer clothes.

To maintain the illusion of profitability and avoid detection, McDonald reportedly sent falsified account statements to clients. One detailed instance involved a client who invested approximately $351,000 and received fraudulent statements indicating significant returns, masking the true losses and misuse of their funds.

The deception unraveled when McDonald failed to appear before the United States Securities and Exchange Commission (SEC) in November 2021. Subsequently, he was declared a fugitive. The legal proceedings continued in his absence, and a United States District Judge found him liable for $3,810,346, which represented the net profits he gained from the misconduct.

McDonald's capture in Port Orchard, Washington, comes after nearly three years on the run. He was located and detained by the FBI and will be extradited back to California to face trial. The charges against him are severe, covering a range of financial crimes. He is charged with one count of securities fraud, one count of wire fraud, three counts of investment adviser fraud, and two counts of engaging in monetary transactions involving property derived from unlawful activity.

Each count of securities fraud and wire fraud carries a potential sentence of up to 20 years in federal prison. For each count of engaging in monetary transactions involving unlawful proceeds, McDonald could face up to 10 years in prison, and for each count of investment adviser fraud, up to five years. The cumulative sentence, if he is found guilty on all charges, could be substantial.

McDonald's arrest closes a chapter on what has been a protracted investigation and pursuit by federal authorities. The case has drawn significant attention due to McDonald's leadership positions as the former CEO and chief investment officer of Hercules Investments LLC and Index Strategy Advisors Inc.