The Securities and Exchange Commission (SEC) is conducting an investigation on Michael Milken to find out if he violated the terms of his lifetime ban from the securities industry in connection with his relationship with Guggenheim Partners, according to the report from CNN Money’s Fortune.
Milken was once considered the king of junk bonds because of his contributions in the development of markets for high-yield bonds. He pleaded guilty to securities and reporting violations, and agreed to pay a penalty of $600 million, a lifetime ban from the securities industry, and ten years imprisonment in 1989. His sentence was reduced to two years after cooperating with authorities to testify against his colleagues.
The lifetime ban prohibits Michael Milken from serving as a broker or investment advisor for any firm, but he is allowed to manage his own money.
The report cited that the SEC is checking if Milken is acting as a manager for Guggenheim investments. He is a long time client of the firm and invested as much as $800 million, and apportion of it was placed in the hedge fund managed by Todd Boehly, president of Guggenheim Partners.
According to the report, the SEC wants to find out whether Milken is providing advice to the firm in exchange for compensation. The agency is also looking into several transactions made by Milken with Guggenheim, such as his joint investment with firm in an energy company called Milagro. The transaction helped Milagro acquire the Gulf operations of Petrohawk Energy for $825 million in 2007.
The SEC investigation concerning Milken’s relationship with Guggenheim has been ongoing for two years. The agency sent a subpoena to Boehly and the firm provided tens of thousands of documents including emails, and trading records to investigators. Currently, the agency has not made any legal action against Milken or Guggenheim related to the ongoing inquiry. Investigators are, however, in close contact with the firm.
The firm denied suspicions that Milken managed other accounts besides his own. Guggenheim CEO, Mark Walter, said, “Mike doesn’t have an ownership or managerial role of any kind at Guggenheim. 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.”
On the other hand, Milken’s spokesperson issued a statement regarding the SEC investigation. The spokesperson emphasized that Milken has devoted his lifetime to philanthropic initiatives, particularly education and is an advocate for medical research on life threatening diseases. He also said that Milken manages his and his family’s personal investments. He works with investment advisors and money managers as an investor who only discuss his own and family’s personal funds.
According to the spokesperson, Milken “has no desire to be in the securities business in any capacity and has strictly avoided doing anything that could be interpreted otherwise.”
Milken has been involved in several securities scandals due to unethical behaviors since 1979. James B. Stewart’s book entitled ‘Den of Thieves’ cited sources that Milken tried to get returns on trades higher than what was allowed by regulations at the time. In 1986, Ivan Boesky who pleaded guilty for committing securities fraud implicated Milken in several insider trading and stock manipulation.
The SEC also accused him of violating his lifetime ban from securities trading a few years after he got out of prison by providing investment advice to Ron Perelman and Rupert Murdoch. He settled the allegations of the agency, but did not admit or deny any wrongdoings. He agreed to pay a $47 million penalty.