A California federal judge on Monday sentenced former CNBC pundit James Arthur McDonald Jr. to five years in prison after he admitted to defrauding investors — including close friends — out of at least $2.7 million. The ruling closes a sordid chapter in a case the government described as a sophisticated fraud scheme.

U.S. District Judge Dale S. Fischer delivered the sentence, falling between the government’s request for 78 months and the defense’s push for a lighter 36-month term. She also tacked on three years of supervised release and a $100 special assessment, while restitution will be determined later.

A Fall From Television to Shackles

McDonald, once a frequent guest on CNBC and CEO of Los Angeles-based Hercules Investments LLC and Index Strategy Advisors Inc., appeared in court in prison garb and ankle shackles. He broke down in tears as he confessed to misusing funds entrusted to him.

“As painful as it is to admit, I betrayed them by misusing money they entrusted to me. I’m so sorry,” McDonald told the court.

The former executive had been a fugitive for nearly three years after skipping a U.S. Securities and Exchange Commission appearance, before being arrested in Washington state in June 2024. He pleaded guilty in February to one count of securities fraud under a plea deal.

A Risky Bet Gone Wrong

Prosecutors argued McDonald’s troubles began in 2020, when he wagered heavily that the U.S. economy would crash following the presidential election. The bet backfired, wiping out tens of millions in client funds.

Instead of coming clean, McDonald allegedly raised millions in new investments for Hercules, while concealing prior losses. According to the Department of Justice, he used investor funds to make personal purchases, including at a Porsche dealership, and even funneled money to cover rent on a luxury Arcadia, California home.

Losses from the scheme totaled between $2.7 million and $3 million, court filings state.

Was It “Garden Variety” Fraud?

Defense attorney Danielle McKenzie Tyukody of O’Melveny & Myers LLP argued the misconduct amounted to “garden variety” fraud, claiming the sentencing enhancement for “sophisticated means” was overblown. The fake account statements McDonald issued, she said, were “very basic.”

But prosecutor Alexander B. Schwab countered that McDonald’s ploy — a capital raise under false pretenses while juggling Ponzi-style payouts — went far beyond simple deception.

Judge Fischer agreed, ruling the enhancement applied. She acknowledged McDonald may have initially sought to repay investors, but added: “That is no comfort to those who lost nearly everything along the way.”

Charges and Representation

In 2023, a Los Angeles grand jury indicted McDonald on securities fraud, wire fraud, three counts of investment adviser fraud, and two counts of money laundering tied to the scheme.

The U.S. Attorney’s Office for the Central District of California is represented by Schwab and Nisha Chandran. McDonald is represented by Charles P. Diamond and Tyukody of O’Melveny & Myers LLP.