’80s flashbacks

I like taking cheap shots at the SEC as much as the next guy, maybe more, so when I see a headline like “The SEC is investigating Michael Milken” it’s tempting to say “oh, yeah, he supposedly did some insider trading in the mid ’80s, so it makes sense that the SEC would be getting to it now.”1 But no, turns out they got that one already; this is new (newish) news:

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 [Partners] 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.

From this brief description it sounds like there is a genuinely interesting issue here, which is: what is advice? Also, what is compensation? So two interesting issues I guess.2 Read more »