Officials from the Securities and Exchange Commission (SEC) are reported to have asked to see documents of MCI Communications, in which British Telecom has a significant stake, pertaining to advice allegedly given by Mr Milken in the company's decision last spring to invest up to $2bn in Rupert Murdoch's News Corporation.
Mr Milken, who pleaded guilty to six counts of fraud in 1990 and served two years in prison, is known also to have advised in some other recent Wall Street deals, including the prospective takeover of Turner Broadcasting by Time Warner. Ted Turner recently suggested Mr Milken, a long-time friend, would receive a fee for his services of over $50m (pounds 32m).
As part of a deal struck with prosecutors, Mr Milken, who pioneered the market in high-yield, high-risk securities that became known as junk bonds, agreed to be barred for life "from association with any broker, dealer, investment adviser, investment company or mutual securities dealer".
While the wording of the deal appears to leave some grey area as to what Mr Milken can and cannot become involved in, there has been growing speculation on Wall Street in recent weeks that he may have crossed the line in recent activities, and that a formal investigation by the government was all but inevitable.
News of the approach to MCI was reported by the New York Times, which cited anonymous sources close to the company. No comment was offered either by the always tight-lipped SEC, or by lawyers at MCI. "All our investigations are non-public," an SEC spokesman in Washington said.
A lawyer for Mr Milken, Richard Sandler, told the newspaper, however, that he was "100 per cent comfortable" with the activities of his client, who is still serving up to 40 hours of community service a week as part of his sentence. He led the junk-bonds boom from the Los Angeles office of the now defunct securities firm, Burnham Drexel Lambert.
Mr Milken still has powerful friends at the highest levels of many of America's largest corporations, including Mr Turner, Ronald Perelman, Calvin Klein, Mr Murdoch and the chairman of MCI, Bert Roberts. Mr Milken was reported to have introduced Mr Murdoch to Mr Roberts and therefore opened the way to MCI's investment in News Corporation.
The investigation into Mr Milken's junk-bond transactions was launched in 1986, even though he was not convicted until 1990. As well as serving time in prison, Mr Milken paid fines totalling $1.1bn.
If the SEC request for documents from MCI is confirmed, it would seem to indicate that a formal probe into Mr Milken's activities has been launched. Such an investigation would almost certainly not be limited to his relationship with MCI, however, but would probably extend to the part he played in the Turner-Time Warner negotiations last month.
After his talks with Gerald Levin of Time Warner, Mr Turner took care to emphasise that in spite of the large fee that had been promised to Mr Milken he had not been present at any of the key negotiating sessions in New York.