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Michael Milken Said to be Under SEC Investigation

“FORTUNE — The Securities and Exchange Commission is investigating the relationship between Michael Milken and Guggenheim Partners, Fortune has learned.

The federal agency is examining whether Milken, the one time king of junk bonds who agreed to a lifetime ban from the securities industry, is violating the terms of that ban in his dealings with Guggenheim, which manages $170 billion and led a consortium last year that bought the Los Angeles Dodgers.

Milken has been a longtime client of the firm and at times has had as much as $800 million invested with Guggenheim, some of it in a hedge fund run by the firm’s president Todd Boehly. News of the investigation, as well as his relationship with Milken—who in the past sometimes spoke to Boehly multiple times a week—is contained in a cover story about Guggenheim in the March 18 issue of Fortune. (You can read the story here: Guggenheim is flexing its $170 billion muscles)

Milken’s settlement with the SEC for his role in the 1980s Wall Street scandals allows him to manage his own money. But he is banned from acting as an investment advisor or broker. The SEC is looking at whether Milken is violating that ban by effectively acting as a manager of Guggenheim investments beyond his own, according to sources familiar with the investigation. The question is: Has Milken provided advice in exchange for some form of compensation? The SEC is looking at a number of transactions that Milken has done with Guggenheim. In one instance being investigated, Milken and the firm jointly invested in an energy company called Milagro, which says the infusion helped it buy the Gulf Coast operations of Petrohawk Energy for $825 million in 2007.

Boehly has been subpoenaed by the SEC and the firm has handed over tens of thousands of documents, including trading records and emails, to investigators. SEC investigators are in regular contact with Guggenheim, but so far the probe—which has been going on for two years—hasn’t resulted in any formal action.

Guggenheim denies that Milken has managed others’ accounts. “Mike doesn’t have an ownership or managerial role of any kind at Guggenheim,” says its CEO, Mark Walter. “The firm’s interaction with him is no different than it is with a number of its clients, including during 2008-09 when many called several times a week at various times.”

SEC spokeswoman Christina D’Amico declined to comment…”

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